UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
Date of event requiring this shell company report:
Commission file number001-32570
ENTRÉE GOLD INC.
(Exact name of Registrant as specified in its charter)
Province of British Columbia, Canada
(Jurisdiction of incorporation or organization)
1650 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
(Address of principal executive offices)
Susan McLeod, Vice-President Legal Affairs
1650 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
Telephone: (604)687-4777
Email: smcleod@entreegold.com
(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Title of Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Common Shares, no par value | ERLFF | Over-the-Counter OTCQB Venture Market |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the Registrant'sRegistrant’s classes of capital or common stock as of the close of the period covered by the annual report:As at December 31, 2015, 147,330,9172019, 175,470,074 Common Shares of the Registrant were issued and outstanding
Indicate by check mark if the registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐☐ No☒
If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. filer, or an emerging growth company. See definition of "accelerated filer“large accelerated filer”, “accelerated filer” and large accelerated filer"“emerging growth company” in Rule12b-2 of the Exchange Act. (Check one)
Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | |||||
Emerging growth company | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrantRegistrant has used to prepare the financial statements included in this filing:
U.S. GAAP | International Financial Reporting Standards as issued | Other ☐ | ||||||
by the International Accounting Standards Board | ☒ |
If "Other"“Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrantRegistrant has elected to follow:
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐ No☒
In this annual report on Form20-F, which we refer to as the "Annual Report"“Annual Report”, except as otherwise indicated or as the context otherwise requires, the "Company"“Company”, "we"“we”, "our"“our” or "us"“us” or "Entrée"“Entrée” or "Entré“Entrée Gold"Resources” refers to Entrée Gold Inc.Resources Ltd. and its consolidated subsidiaries, as applicable. The Company is a "foreign“foreign private issuer"issuer” as defined inRule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the "U.S.“U.S. Exchange Act"Act”). The equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the U.S. Exchange Act pursuant toRule 3a12-3.
Unless we otherwise indicate in this Annual Report, all references to "Canadian Dollars"“Canadian Dollars”, "Cdn $"“Cdn $” or "C$"“C$” are to the lawful currency of Canada and all references to "U.S. Dollars"“U.S. Dollars” or "$"“$” are to the lawful currency of the United States.
This Annual Report contains "forward“forward looking information"information” and "forward-looking statements"“forward-looking statements” (together, "forward-looking statements"“forward-looking statements”) within the meaning of securities legislation in Canada and the United States Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements concern the Company'sCompany’s anticipated results and developments in the Company'sCompany’s operations in future periods, planned exploration and development of its properties, plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Statements concerning mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed, and such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects"“expects” or "does“does not expect"expect”, "is expected"“is expected”, "anticipates"“anticipates” or "does“does not anticipate"anticipate”, "plans"“plans”, "estimates"“estimates” or "intends"“intends”, or stating that certain actions, events or results "may"“may”, "could"“could”, "would"“would”, "might"“might” or "will"“will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. 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 the Company'sCompany’s future performance and are based on numerous assumptions regarding present and future business strategies, the correct interpretation of agreements, laws and regulations, local and global economic conditions legal proceedings and negotiations and the environment in which Entrée will operate in the future, including commodity prices, projected grades, projected dilution, anticipated capital and operating costs and anticipated future production and cash flows, the anticipated location of certain infrastructure and sequence of mining, the construction and development of the Oyu Tolgoi underground mine, and the status of Entrée'se’s relationship and interaction with the Government of Mongolia, OTLLC, Rio Tinto and Turquoise Hill. The 2018 PEA is based on a conceptual mine plan that includes Inferred resources. Numerous assumptions were made in the preparation of the 2018 PEA, including with respect to mineability, capital and operating costs, production schedules, the timing of construction and expansion of mining and processing facilities, and recoveries, that may change materially once production commences at Hugo North Extension Lift 1 and additional development and capital decisions are required.
Important risks, uncertainties, assumptions and other factors which could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements include, without limitation:
the timing and cost of the construction and expansion of Oyu Tolgoi mining and processing facilities; |
the timing and availability of a |
● | the ability of OTLLC to secure and draw down on the supplemental debt under the Oyu Tolgoi |
delays, and the costs which would result from delays, in the development of the Oyu Tolgoi underground mine; |
● | the status of the relationship and interaction between OTLLC, Rio Tinto and Turquoise Hill with the Government of Mongolia on the continued operation and development of Oyu Tolgoi and OTLLC internal governance; |
● | the anticipated location of certain infrastructure and sequence of mining; |
● | projected commodity prices and their market demand; |
production estimates and the anticipated yearly production of copper, gold and silver at |
any changes to the |
unanticipated costs, expenses or liabilities; |
discrepancies between actual and |
development plans for processing resources; |
● | the outcome of the Definitive Estimate; |
● | 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, including the COVID-19 (coronavirus) pandemic; |
● | risks associated with changes in the attitudes of governments to foreign investment; |
● | risks associated with the conduct of joint ventures; |
● | inability to upgrade Inferred mineral resources to Indicated or Measured mineral resources; |
● | inability to convert mineral resources to mineral reserves; |
● | conclusions of economic evaluations; |
● | 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, Turquoise Hill |
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 |
unanticipated reclamation expenses; |
geotechnical or hydrogeological considerations during mining being different from what was assumed; |
changes to assumptions as to the availability of electrical power, and the power rates used in |
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; |
environmental risks; |
global climate change; |
● | title disputes; |
limitations on insurance coverage; |
● | competition; |
● | loss of key employees; |
● | cyber security incidents; |
● | misjudgements in the course of preparing forward-looking statements; |
● | the potential application of the Government of |
risks related to officers and directors becoming associated with other natural resource companies which may give rise to conflicts of interests; |
risks that the Company could be deemed a passive foreign investment company, which could have negative consequences for U.S. investors; |
risks related to differences in United States and Canadian reporting of reserves and resources; |
risks related to the potential inability of U.S. investors to enforce civil liabilities against the Company or its directors, controlling persons and officers; |
risks related to the Company being a foreign private issuer under |
● | risks related to the voluntary delisting of the Company’s Common Shares from the NYSE American LLC. |
The above list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the section heading "Item“Item 3. Key Information – D. Risk Factors"Factors” below in this Annual Report. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. Forward-looking statements are made based on management'smanagement’s beliefs, estimates and opinions on the date the statements are made, and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.
The Company qualifies all the forward-looking statements contained in this Annual Report by the foregoing cautionary statements.
As used in this Annual Report, the terms "mineral reserve"“mineral reserve”, "Proven“Proven mineral reserve"reserve” and "Probable“Probable mineral reserve"reserve” are Canadian mining terms as defined in accordance with Canadian NationalInstrument 43-101 –Standards of Disclosure for Mineral Projects ("(“NI 43-101"43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM"(“CIM”) -CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council on May 10, 2014, as amended. These definitions differ from the definitions in the U.S. Securities and Exchange Commission's ("SEC"Commission’s (“SEC”) Industry Guide 7 ("(“SEC Industry Guide 7"7”) under the United States Securities Act of 1933, as amended ("(“U.S. Securities Act"Act”). Under SEC Industry Guide 7 standards, a "final"“final” or "bankable"“bankable” Feasibility Study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and all necessary permits and governmental authorizations must be filed with the appropriate governmental authority.
In addition, the terms "mineral resource"“mineral resource”, "Measured“Measured mineral resource"resource”, "Indicated“Indicated mineral resource"resource” and "Inferred“Inferred mineral resource"resource” are defined in and required to be disclosed byNI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normallyhave historically not been permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. "Inferred“Inferred mineral resources"resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all, or any part, of an Inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred mineral resources may not form the basis of Feasibility orPre-Feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an Inferred mineral resource exists or is economically or legally mineable. Disclosure of "contained ounces"“contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute "reserves"“reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this Annual Report and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subjectpursuant to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
The Company is a "foreign“foreign private issuer"issuer” under SEC regulations. The Company files its financial statements with both Canadian and U.S. securities regulatorsregulators. For the years ended December 31, 2019, 2018 and 2017, the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) which differs in certain respects from United States Generally Accepted Accounting Principals (“U.S. GAAP”). For periods up to and including the year ended December 31, 2016, the Company prepared its financial statements in accordance with U.S. GAAP,GAAP. The Company’s consolidated financial statements for the year ended December 31, 2017 were the first that it prepared in accordance with IFRS as permitted under current regulations. In 2008,issued by the Accounting Standards Board in Canada and the Canadian Securities Administrators ("CSA") confirmed that domestic issuers were required to transition to International Financial Reporting Standards ("IFRS") for fiscal years beginning on or after January 1, 2011. On June 27, 2008, the CSA Staff issued Staff Notice 52-321 – Early Adoption of International Financial Reporting Standards, Use of US GAAP and References to IFRS-IASB which confirmed that domestic issuers that are also SEC registrants are able to continue to use U.S. GAAP. Consequently, the Company is not required to convert to IFRS effective January 1, 2011 and has elected to continue using U.S. GAAP.
The annual audited consolidated financial statements contained in this Annual Report are reported in United States dollars, unless otherwise specified. All references to "Common Shares" mean common sharesTable amounts are expressed in the capital stockthousands of Entrée Gold Inc. See "Exchange Rate" below.
Non-IFRS Performance Measurement: "Cash costs"“Cash costs after credits” (“C1”) and "all-inall-in sustaining costs" ("ASIC"cost (“AISC”) are non-U.S. GAAPnon-IFRS performance measurements. These performance measurements are included because these statistics are widely accepted as the standard of reporting cash costs of production in North America. These performance measurements do not have a meaning within U.S. GAAPIFRS and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. These performance measurements should not be considered in isolation as a substitute for measures of performance in accordance with U.S. GAAP.IFRS.
PART I.
October 2018 | Turquoise Hill announces that Rio Tinto, in its role as manager of the Oyu Tolgoi project and underground construction contractor, has undertaken its second annual schedule and costre-forecast for the project. According to thisre-forecast, lateral development has progressed well, the construction completion schedule for Hugo North Lift 1 on the Oyu Tolgoi mining licence remains on track for 2022 and the project is expected to be completed at the $5.3 billion budget estimate disclosed in OTFS16 and Turquoise Hill’s 2016 Oyu Tolgoi Technical Report. OTLLC has committed $2.1 billion to Mongolian vendors and contractors since the restart of project development. Additionally, several key facilities have been completed, including Shaft 5, various underground infrastructure and a new Despite significant progress in the development of the | |
November 2018 | Turquoise Hill announces that the main focus of 2018 continues to be underground lateral development, the fit out of Shaft 2, support infrastructure and theconvey-to-surface decline. At the end 2018, underground development is expected to have completed approximately 11 km of equivalent development through a mixture of mass excavation and lateral development.Pre-sinking activities for Shafts 3 and 4 progressed during the third quarter of 2018, including a box cut, and sinking for both shafts is expected to commencemid-2019. Shaft 2 completed sinking in January 2018 and was followed by the completion of stripping in the third quarter of 2018 and the start of thefit-out process in the same quarter. During the third quarter of 2018, Shaft 2 collar doors and controls were commissioned and mechanical installation of the rock breaker on the shaft’s jaw crusher was completed. Shaft 2 capabilities, along with increased development, are critical path items to the start of productionramp-up. During the third quarter of 2018, development of theconvey-to-surface decline also continued to progress with the permanent ventilation facility being commissioned and becoming operational. Theconvey-to-surface system enables production ramp up beyond the Shaft 2, 30,000 tonnes per day capacity to the full 95,000 tonne per day underground production from the mine. | |
December 2018 | Turquoise Hill announces the signing of the Power Source Framework Agreement (“PSFA”) between OTLLC and the Government of Mongolia | |
April 2019 | As reported by Turquoise Hill, Rio Tinto, as manager of the Oyu Tolgoi project, | |
May 2019 | As reported by Turquoise Hill, during the first quarter of 2019 work continued on critical Shaft 2 equipping activities, central heating plant, mine infrastructure, underground materials handling system and on priority underground development. Thefit-out and commissioning of Shaft 2 is expected to be completed by the end of October 2019.Pre-sinking works for Shaft 3 and Shaft 4 have commenced. |
August 2019 | As reported by Turquoise Hill: ● Improved rock mass information and geotechnical data modelling has confirmed that there are stability risks associated with components of the ● A number of options are being evaluated to determine the final design of Panel 0, and this work is anticipated to continue into early 2020. Following a period of additional data collection and model updates, two phases of geotechnical modelling work are planned to inform staged mine design updates. The geotechnical modelling is expected to continue into early 2020 with final design decisions to be made at this time. A period of detailed design, schedule and cost estimation will follow resulting in the delivery of the Definitive Estimate in the second half of 2020, reflecting the preferred mine design approach. ● All options under consideration present a clear pathway to sustainable first production from the Oyu Tolgoi mining licence, albeit with different cost and schedule implications. Critically, all underground development to date has not been impacted at all by pending changes to the mine design, and all infrastructure developed to date remains usable and in the appropriate locations for all of the mine design options under review. ● Based on these options, preliminary estimates indicate that sustainable first production from the Oyu Tolgoi mining licence could be delayed by 16 to 30 months compared to Turquoise Hill’s original feasibility study guidance in 2016, and the development capital spend for the Oyu Tolgoi underground project may increase by $1.2 billion to $1.9 billion over the $5.3 billion previously disclosed by Turquoise Hill. This range includes contingency of up to eight months reflecting the unexpected and challenging geotechnical issues, complexities in the construction of Shaft 2, and reflects the detailed work still required to reach a more precise estimate. This results in sustainable first production from the Oyu Tolgoi mining licence now being expected between May 2022 and June 2023 with the first drawbell now expected between October 2021 and September 2022. ● Current information indicates that Oyu Tolgoi mineral reserves will not be materially impacted by the mine design options being considered; however, ongoing reviews will be considered as work progresses. | |
August – October 2019 | The Company announces in August 2019 that it has received a notice from NYSE American LLC stating that it is not in compliance with certain continued listing standards. In September 2019 the Company announces its intention to voluntarily withdraw its Common Shares from listing on NYSE American LLC. After careful consideration and a review of several options, the Board has determined that a voluntary delisting and applying for trading on a more suitable U.S. trading platform is in the Company’s best interests. The Company announces that its last day of trading on the NYSE American LLC is September 30, 2019 and effective October 1, 2019, the Company’s Common Shares will commence trading on the OTCQB in the United States under the symbol “ERLFF”. | |
November 2019 | As reported by Turquoise Hill, construction of Shaft 2 on the Oyu Tolgoi underground project is complete and is in the final stages of commissioning. The completion of Shaft 2 is a significant milestone | |
The first of the |
During the year ended December 31, 2013,2017, the Company acquired certain unpatented lode claims within or continguous todivested its mineral property interests in the boundaries of its Ann Mason Project pursuant to whichand the Company paid $50,000. Lordsburg property as part of the Arrangement with Mason Resources in exchange for 77,804,786 common shares of Mason Resources.
During the year ended December 31, 2014,2018, the Company acquired certain unpatented lode claims within or continguousdivested a 0.5% NSR royalty on Candente Copper Corp.’s Cañaraico copper project in Northern Peru to the boundariesAnglo Pacific in return for $1.0 million payable by issuance of its Ann Mason Project pursuant to which the Company paid $100,000 and issued 250,000478,951 common shares valued at $73,618. of Anglo Pacific.
During the year ended December 31, 2015, Entrée made payments of $500,000 related to mineral property acquisitions for2019, the Cañariaco project royalty.
The Company made no capital divestituresacquisitions during the past three fiscal years.
The SEC maintains an Internet site athttp://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information is also available under the Company’s profile on SEDAR (www.sedar.com) or onwww.EntreeResourcesLtd.com.
B. | Business Overview |
Mineral Exploration Business
Entrée is in the mineral resource business. This business generally consists of three stages: exploration, development and production. Mineral resource companies that are in the exploration stage have not yet found mineral resources in commercially exploitable quantities and are engaged in exploring land in an effort to discover them. Mineral resource companies that have located mineral resources in commercially exploitable quantities and are preparing to extract them are in the development stage, and the properties are referred to as being
Mineral resource exploration can consist of several stages. The earliest stage usually consists of the identification of a potential prospect through either the discovery of a mineralized showing on that property or as the result of a property being in proximity to another property on which exploitable resources have been identified, whether or not they are or have in the past been extracted.
After the identification of a property as a potential prospect, the next stage would usually be the acquisition of a right to explore the area for mineral resources. This can consist of the outright acquisition of the land and mineral rights or the acquisition of specific but limited mineral rights to the land (e.g. a licence, lease or concession). After acquisition, exploration typically begins with a surface examination by a professional geologist with the aim of identifying areas of potential mineralization, followed by detailed sampling and mapping of rock exposures along with possible geophysical and geochemical grid surveys overun-exposed portions of the property (i.e. underground), and possibly trenching in these covered areas to allow sampling of the underlying rock. Exploration also commonly includes systematic regularly-spaced drilling in order to determine the extent and grade of the mineralized system at depth and over a given area, and in sufficiently-advanced properties, gaining underground access by ramping or shafting in order to obtain bulk samples that would allow one to determine the ability to recover various commodities from the rock.
A mineral resource may be identified and estimated through detailed exploration, drilling and sampling to establish geological and grade continuity followed by a geostatistical analysis of the data. The results are supported by a technical report prepared in accordance with NI43-101. A mineral resource company may then choose to have a Preliminary Economic Assessment (
Once exploration is sufficiently advanced, and if the resource estimate is of sufficient quality (i.e. with mineralization classified in the Indicated and/or Measured categories), the next step would be to undertake aPre-Feasibility study followed by a Feasibility Study.
Business of Entrée
Entrée's twoe’s principal assets are the Ann Mason copper-molybdenum project in Nevada, and Entrée'sasset is its joint venture interest in the Entrée/Oyu Tolgoi JV Property in Mongolia, which hostsforms a copper-gold porphyry system.
● | The Hugo North Extension copper-gold porphyry 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. Based on the mine design discussed in OTFS16 and the 2018 Technical Report, development would cross north onto the Entrée/Oyu Tolgoi JV Property in approximately 2021. Hugo North Extension Lift 1 Probable reserves include 35 Mt grading 1.59% copper, 0.55 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. Once OTLLC, Turquoise Hill and Rio Tinto have determined the preferred mine design approach and delivered the Definitive Estimate, the Company will be able to assess the potential impact on mineral resources and reserves and the development schedule for the Entrée/Oyu Tolgoi JV Property. |
– | 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. |
● | The Heruga copper-gold-molybdenum porphyry 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 and a slightly deeper block cave to the north. The portion of the Heruga mineral resources that occur on the Entrée/Oyu Tolgoi JV Property are part of the alternative, 2018 PEA mine plan and include 620 Mt (Inferred) grading 0.42% copper, 0.43 g/t gold, and 1.53 g/t silver. |
● | A large prospective land package. |
Entrée has a 20% or 30% (depending on the depth of mineralization) participating interest in the Entrée/Oyu Tolgoi JV with OTLLC holding the remaining 80% (or 70%) interest. OTLLC has a 100% interest in other Oyu Tolgoi project areas, including the Oyut open pit, which hostsis currently in production, and the Heruga copper-gold-molybdenum deposit. Separately, Hugo North and Hugo South deposits on the Oyu Tolgoi mining licence.
Entrée also has a 100% interest in the western portion of the Shivee Tolgoi mining licence, which is referred to as "Shivee West"the “Shivee West Property”.
The Entrée/Oyu Tolgoi JV Property and the Shivee West more clearlyProperty, known together as the “Entrée/Oyu Tolgoi JV Project” or the “Project”, are shown on Figure 1. This figure also shows the main mineral deposits that form the Oyu Tolgoi Trend of porphyry deposits and furtherseveral priority exploration targets, including Airstrip, Bumba Ulaan, Mag West, Gravity Ridge and Southwest IP.
Figure 1 – Entrée/Oyu Tolgoi JV Project
Notes:
● | * The Shivee West Property 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. |
● | Entrée has a 20% participating interest in the Hugo North Extension and Heruga resources and reserves. |
Further details regarding the Entrée/Oyu Tolgoi JV Property and Shivee WestProject are provided in Figure 1 and in "Item“Item 4. Information on the Company – C. – Property, Plants and Equipment"Equipment” below.
Aside from its two principal assets,asset, Entrée has royalty and other interests in exploration properties in the United States, Australia and Peru. See "Item“Item 4. Information on the Company – C. – Property, Plants and Equipment"Equipment” below for more information.
Robert Cinits, P.Geo., Entrée'sformerly Vice President, Corporate Development. Mr. Cinits isDevelopment of the Company and currently a QP as defined in NI 43-101. Unless otherwise noted herein, Mr. Cinitsconsultant to Entrée has approved all scientific and technical information in this Annual Report.
Turquoise Hill, Rio Tinto and OTLLC
In October 2004, the Company entered into an arm's-lengtharm’s-length Equity Participation andEarn-In Agreement (the "Earn-In Agreement"“Earn-In Agreement”) with Turquoise Hill. Under theEarn-In Agreement, Turquoise Hill agreed to purchase equity securities of the Company and was granted the right to earn an interest in the Entrée/Oyu Tolgoi JV Property. TheEarn-In Agreement was amended in November 2004, to append the form of joint venture agreement (the “Entrée/Oyu Tolgoi JVA”) that the parties are required to enter into at such time as theearn-in obligations are completed. Most of Turquoise Hill'sHill’s rights and obligations under theEarn-In Agreement, including its right of first refusal on the Shivee West Property, were subsequently assigned by it to what was then its wholly-owned subsidiary, OTLLC. OTLLC is also the title holder of the Oyu Tolgoi mining licence, illustrated in Figure 1 below.
OTLLC undertook an exploration program which established the presence of two significant mineral deposits on the Entrée/Oyu Tolgoi JV Property: the Hugo North Extension deposit and the Heruga deposit. These deposits form the northernmost and southernmost parts of the Oyu Tolgoi project, which is a series of porphyry deposits containing copper, gold, silver and molybdenum. The deposits stretch over 12 kilometres,km, from the Hugo North Extension deposit on the Entrée/Oyu Tolgoi JV Property in the north, through the Hugo North and Hugo South deposits and SouthernOyut deposit on OTLLC’s Oyu deposits on OTLLC's Oyu Tolgoi mining licence, to the Heruga deposit in the south, the majority of which occurs on the Entrée/Oyu Tolgoi JV Property in the south (Figure 2).
Figure 2 - Idealized Profile (Longitudinal Section)– Cross Section Through the Oyu Tolgoi Trend of Heruga, Southern Oyu and Hugo DummettPorphyry Deposits (Section Looking West)
Additional information regarding the Entrée/Oyu Tolgoi JV Property is discussed under "Itemprovided in “Item 4. Information on the Company C. – Property, Plants and Equipment" Equipment” below.
On June 30, 2008, OTLLC gave notice to Entrée that it had completed itsearn-in obligations by expending a total of $35 million on exploration on the Entrée/Oyu Tolgoi JV Property. As a consequence, OTLLC earned an 80% interest in all minerals extracted belowa sub-surface depth of 560 metresm from the Entrée/Oyu Tolgoi JV Property and a 70% interest in all minerals extracted from surface to a depth of 560 metresm from the Entrée/Oyu Tolgoi JV Property. The Earn-In Agreement provides that at such time as OTLLC completes its earn-in obligations,Property, and the parties willwere required to enter into a joint venture agreement in the form attached to the Earn-In Agreement.Entrée/Oyu Tolgoi JVA. While the parties have not formally executed the joint venture agreement, the joint venture (the "EntréEntrée/Oyu Tolgoi JV")JVA, the Entrée/Oyu Tolgoi JV is operating under those terms.
Under the terms of the Entrée/Oyu Tolgoi JV,JVA, Entrée elected to have OTLLC debt finance Entrée'se’s share of costs with interest accruing at OTLLC'sOTLLC’s actual cost of capital or prime plus 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'se’s share of products. Such amounts will be applied first to payment of accrued interest and then to repayment of principal. Available cash flow means all net proceeds of sale of Entrée'se’s share of products in a month less Entrée'se’s share of costs of operations for the month. The debt financing and repayment provisions limit dilution of Entrée'se’s interest as the project progresses. Since formation of the Entrée/Oyu Tolgoi JV in 2008, and as of December 31, 2015,2019, the Entrée/Oyu Tolgoi JV has expended $27.8approximately $32.9 million to advance the Entrée/Oyu Tolgoi JV Property. As of December 31, 2015,2019, OTLLC has contributed on Entrée'se’s behalf the required cash participation amount equal to 20% of the $27.8$32.9 million incurred to date, plus accrued interest at prime plus 2%, for a total of $6.8$9.0 million.
At December 31, 2015,2019, Turquoise Hill owned approximately 9.4%7.9% of the Company'sCompany’s issued and outstanding Common Shares acquired pursuant to theEarn-In Agreement. In addition, Rio Tinto, Turquoise Hill'sHill’s majority shareholder, Rio Tinto, owned 11.3%approximately 9.4% of the Company'sCompany’s issued and outstanding Common Shares as at December 31, 2015.
Execution of Oyu Tolgoi Investment Agreement, Heads of Agreement and Memorandum of Agreement
The Minerals Law of Mongolia, which became effective on August 26, 2006, defines a mineral deposit of strategic importance (a "Strategic Deposit"“Strategic Deposit”) as a mineral resource that may have the potential to impact national security, or the economic and social development of the country, or that is generating or has the potential to generate more than five percent (5%) of Mongolia'sMongolia’s gross domestic product in any given year. Under Resolution No 57 dated July 16, 2009 of the State Great Khural, the Oyu Tolgoi series of deposits were declared to be Strategic Deposits.
The Minerals Law of Mongolia provides that the State may be an equity participant with any private legal entity, up to a 34% equity interest, in the exploitation of any Strategic Deposit where the quantity and grade of the deposit have been defined by exploration that has not been funded from the State budget. On October 6, 2009, Turquoise Hill, its wholly-owned subsidiary OTLLC, and Rio Tinto signed an investment agreement (the "Oyu“Oyu Tolgoi Investment Agreement"Agreement”) with the Mongolian Government, which regulates the relationship among the parties and stabilizes the long termlong-term tax, legal, fiscal, regulatory and operating environment to support the development of the Oyu Tolgoi project. The Oyu Tolgoi Investment Agreement specifies that the Government of Mongolia will own 34% of the shares of OTLLC (and by extension, 34% of OTLLC'sOTLLC’s interest in the Entrée/Oyu Tolgoi JV Property) through its subsidiary Erdenes Oyu Tolgoi LLC. A shareholders'shareholders’ agreement was concurrently executed to establish the Government'sGovernment’s 34% ownership interest in OTLLC and to govern the relationship among the parties.
On December 8, 2010, Rio Tinto and Turquoise Hill entered into a Heads of Agreement (the "Heads“Heads of Agreement"Agreement”), which provides for the management structure of OTLLC and the project management structure of the Oyu Tolgoi project, among other things. Under the Heads of Agreement, Rio Tinto is entitled to appoint three of the nine directors of OTLLC (with Turquoise Hill appointing three and Erdenes Oyu Tolgoi LLC appointing three (as directed within the Amended and Restated Shareholders Agreement among the parties (the "Shareholders Agreement"“Shareholders Agreement”) dated June 8, 2011)) and Rio Tinto assumes management of the building and operation of the Oyu Tolgoi project, which includes the Heruga and Hugo North Extension and Heruga deposits on the Entrée/Oyu Tolgoi JV Property.
On April 18, 2012, Rio Tinto announced that it had signed a memorandum of agreement (the "MOA"“MOA”) with Turquoise Hill, under which Rio Tinto agrees to support and provide certain elements of a comprehensive funding package that will underpin the development of the Oyu Tolgoi project. In accordance with the MOA, Rio Tinto assumed responsibility for all exploration operations on behalf of OTLLC, including exploration on the Entrée/Oyu Tolgoi JV Property.
Oyu Tolgoi Development and Funding
As reported by Turquoise Hill, overall construction of the first phase of the Oyu Tolgoi project (OTLLC's Southern Oyu(OTLLC’s Oyut open pits)pit) was essentially complete at the end of 2012. First ore was processed through the concentrator on January 2, 2013 and production of the first copper-gold concentrate followed on January 31, 2013. The first shipment of copper concentrate was sent to customers in China on July 9, 2013. On October 14, 2013, Turquoise Hill reported that the concentrator was operating at name-plate capacity of approximately 100,000 tonnes of ore processed per day.
As reported by Turquoise Hill, on April 17, 2013, Rio Tinto signed commitment letters with 15 global banks that locked in pricing and terms for long-term project financing for Oyu Tolgoi. On July 28, 2013, following receipt of notification from the Government of Mongolia that project financing for the Oyu Tolgoi underground mine would require approval by the Mongolian Parliament, Turquoise Hill announced that funding and all work on the underground development of Oyu Tolgoi would be delayed. On August 12, 2013, development of the underground mine, including Lift 1 of the Entrée/Oyu Tolgoi JV'sJV’s Hugo North Extension deposit, was suspended. However, Turquoise Hill reported that the Feasibility Study for expansion of the Oyu Tolgoi mine was ongoing. The commitments from the commercial bank consortium formally expired on September 30, 2014.
On May 18, 2015, the Government of Mongolia, OTLLC, Turquoise Hill and Rio Tinto signed an Underground Mine Development and Financing Plan (the “Mine Plan”), signalling the firm commitment of the parties to move forward with underground development of the Oyu Tolgoi copper-gold project. The Mine Plan addressing theaddresses certain key outstanding Oyu Tolgoi shareholder issues, including tax matters, a 2% net smelter returns ("NSR")NSR royalty held by Turquoise Hill, the Oyu Tolgoi 5% sales royalty calculation, management services payments and the sourcing of power for Oyu Tolgoi from within Mongolia.Mongolia, providing a pathway forward to the eventual restart of Phase 2 underground development, including Lift 1 of the Entrée/Oyu Tolgoi JV’s Hugo North Extension deposit. The Mine Plan states that the principles of a comprehensive financing plan including for the underground stage have been agreed on and include that up to $6 billion of external funding will be raised through third party project financing (including for the underground stage) and other bank finance, productoff-take arrangements or other forms of financing.
On December 14, 2015, Turquoise Hill announced that OTLLC had signed a $4.4 billion project finance facility (with provision for up to $6 billion) provided by a syndicate of international financial institutions and export credit agencies. This was followed by formal ‘notice to proceed’ approval from the boards of Rio Tinto, Turquoise Hill Rio Tinto and OTLLC in May 2016, which was the final requirement for there-start of underground development at the Hugo North Lift 1 block cave, including Lift 1 of the Entrée/Oyu Tolgoi will continueJV’s Hugo North Extension deposit. OTLLC drew down approximately $4.3 billion of the project finance facility and underground constructionre-commenced in the second half of 2016.
Oyu Tolgoi Project Underground Development
On November 12, 2019, Turquoise Hill provided the following update regarding the Oyu Tolgoi project.
As previously announced by Turquoise Hill on July 15, 2019, improved information with respect to work towards completing OTFS 2015, includingrock mass and geotechnical data modelling has confirmed that there are stability risks associated with components of the updatedOTFS16 mine design. Preliminary estimates indicate that sustainable first production for Turquoise Hill could be delayed by 16 to 30 months compared with the first quarter 2021 estimate in Turquoise Hill’s original feasibility study guidance in 2016, and the development capital estimate and securing all necessary permitsspend for the developmentproject may increase by $1.2 billion to $1.9 billion over the $5.3 billion previously disclosed by Turquoise Hill.
To address these risks, a number of refinements are under review to determine the final mine design, and the first of the key decisions that has been made is to retain amid-access drive only on the apex level of the mine design of Panel 0.
Amid-access drive is essentially a horizontal tunnel that cuts transversely across the mine footprint and allows OTLLC to develop both north and south within the ore body and accelerate the time to first sustainable production from the Oyu Tolgoi mining licence. Although the ground conditions do not enable OTLLC to incorporate themid-access drive on all three levels of the underground, mine. Once these stepsthe inclusion on the apex level will have a positive impact on OTLLC’s schedule.
This is an integral step towards completing the final mine design, however it is too early to accurately determine the potential impact on the cost or schedule. Decisions on productivity levels and key underground infrastructure, such as the location and design of the ore passes and options for panel sequencing, will need to be completed before an update on the development capital or schedule can be finalized.
Construction of Shaft 2 was completed and the service hoist was successfully commissioned in October 2019. This is a 10 m diameter shaft sunk to approximately 1.3 km below the surface. The shaft uses the world’s largest production hoist motor able to lift 60 tonnes and can carry 300 people in the service hoist. When operating at maximum capacity, the production hoist has the ability to lift 35,000 tonnes of material to the surface daily.
Commissioning of the production hoist continues with over 2,700 tonnes of rock successfully hoisted to surface at the end of the third quarter 2019. OTLLC continues to work with the regulatory agencies to complete the permitting of the production hoist.
The load out conveyor and Shaft 2 integrated materials handling system is fully commissioned. This will enable ore to be conveyed to the concentrator as soon as the production hoist system is commissioned. The Shaft 2 production and logistics capability is a key enabler of increased underground development and construction of critical underground infrastructure such as the Primary Crusher 1 and the material handling systems that support the start of productionramp-up.
Other key infrastructure components completed during the third quarter 2019 include the central heating plant, the Shaft 2 jaw crusher system and the Shaft 2 surface discharge conveyor.
Shaft 3pre-assembly of headframe modules commenced during the third quarter, while Shaft 4 vertical assembly of the sinking stage was completed, along with the commencement of stagefit-out. Primary Crusher 1 civil works are ongoing with the team successfully constructing the 8 m of wall at the underside of the surge bin.
Lateral underground development in the third quarter 2019 accelerated. Extensive focus on productivity gains on the most critical development areas has reaped substantial improvements. Underground development progressed 3.6 total equivalent km and 3.2 lateral km during the third quarter. Between the restart of underground development in May 2016 and the end of the third quarter 2019, 28.0 total equivalent km and 22.1 km of lateral development have been completed.
The following table provides a breakdown of the various components of completed development since project restart:
Year | Total Equivalent Kilometres | Lateral Development (Kilometres) | Mass Excavation (000 metres) | |||
2016 | 1.6 | 1.5 | 3.0 | |||
2017 | 6.1 | 4.8 | 31.7 | |||
2018 | 10.3 | 7.9 | 59.5 | |||
Q1 2019 | 3.2 | 2.3 | 21.4 | |||
Q2 2019 | 3.2 | 2.4 | 19.3 | |||
Q3 2019 | 3.6 | 3.2 | 11.4 | |||
TOTAL | 28.0 | 22.1 | 146.3 |
Turquoise Hill reported that it expects to have enough liquidity to fund its operations and underground development including progression of a Tavan Tolgoi-based power plant, into the first quarter 2021. Taking into consideration the estimated impacts of recently announced increases to underground development capital, as well as delays to first sustainable production from the Oyu Tolgoi mining licence, Turquoise Hill expects to need significant incremental financing to sustain its underground development and construction of a Tavan Tolgoi-based power plant beyond this timeframe. Turquoise Hill and OTLLC have the option to raise additional external financing subject to the boards ofrequired approvals, to assist in funding development going forward, including during underground commissioning and ramp up. Turquoise Hill will have greater clarity on its incremental funding requirement as the Definitive Estimate progresses; however, preliminarily estimates indicate significant incremental financing will be required above the $2.7 billion in liquidity currently available to it. Turquoise Hill has put forward a proposal to Rio Tinto as to how best to source incremental funding necessary to progress underground development over and above its $2.7 billion of available liquidity.
On January 16, 2020, Turquoise Hill noted that productivity improvements resulted in increased underground lateral development rates during the fourth quarter 2019, with an average rate of 1,607 equivalent m compared to 1,214 equivalent m in the third quarter, with December seeing a record 1,809 equivalent m. Construction is progressing on Shafts 3 and 4 with both collars now installed. Final preparations are underway to enable commencement of main sinking operations for both shafts during the second quarter of 2020. Detailed analysis work on the mine design is still anticipated to be completed during the first half of 2020, and the Definitive Estimate, which will include the estimate of cost and schedule for the underground project based on the updated design of Panel 0, is still expected to be delivered in the second half of 2020.
Oyu Tolgoi Power Supply
OTLLC approvingis obliged under the Oyu Tolgoi Investment Agreement to secure a formal 'notice to proceed',long-term domestic power source for the full $4.4 billion facility willOyu Tolgoi mine. The PSFA entered into between OTLLC and the Government of Mongolia on December 31, 2018 provides a binding framework and pathway for the construction of a Tavan Tolgoi-based power solution for the Oyu Tolgoi mine by June 30, 2023. The power plant would be drawn downmajority-owned by OTLLC subjectand situated close to satisfactionthe Tavan Tolgoi coal mining district located approximately 150 km from the Oyu Tolgoi mine.
On February 17, 2020, Turquoise Hill announced the submission of a Feasibility Study for the Tavan Tolgoi Power Plant (“TTPP”) project to the Government of Mongolia by OTLLC.
The TTPP Feasibility Study is based on a 300 MW coal fired power plant to be located in Tsogttsetsii soum of Umnugovi province, with a total project cost estimate of up to $924 million, pending consideration of certain conditions precedent typicalamounts yet to be finalized such as government fees, licenses and certain reimbursements per the Tavan Tolgoi Investment Agreement.
OTLLC has made significant progress to develop a cost competitive and optimal solution for TTPP with a financingfully negotiated engineering, procurement and construction contract that is now ready for signature. The current schedule targets two units of this nature.
Tax Dispute
On February 20, 2020, Turquoise Hill announced that OTLLC has been unable to reach a resolution of its previously announced dispute with the Mongoian Tax Authority with respect to a tax assessment for 2015, Oyu Tolgoi's second full yearapproximately $155 million relating to an audit on taxes imposed and paid by OTLLC between 2013 and 2015. OTLLC will be proceeding with the initiation of production,a formal international arbitration proceeding in accordance with the mine operated at record levels. Compared to 2014 results, 2015 mined production increased 19.3%, concentrator throughput increased 23.9%, concentrate production increased 39.9%, copper production increased 36.3% and gold production increased 10.9%. Production for Oyu Tolgoi for 2015 was 202,200 tonnes of copper and 653,000 ounces of golddispute resolution provisions in concentrates. Oyu Tolgoi is expected to produce 175,000 to 195,000 tonnes of copper and 210,000 to 260,000 ounces of gold in concentrates for 2016. The majority of 2016 gold production is expected in the first half of the year.
Mongolian Parliamentary Working Group
As reported by Turquoise Hill, in March 2018, the Speaker of the Mongolian Parliament appointed a Parliamentary Working Group (“Working Group”) that consisted of 13 Members of Parliament to review the implementation of the Oyu Tolgoi Investment Agreement. The Working Group established fivesub-working groups consisting of representatives from government ministries, agencies, political parties,non-governmental organizations and professors, to help and support the Working Group. The Working Group was initially expected to report to the Parliament before the end of spring session in late June 2018.
On December 13, 2018, OTLLC received a letter from the head of the Working Group confirming that the consolidated report, conclusions and recommendations of the Working Group have been finalized and was ready to be presented to the Parliament.
On March 22, 2019, the Parliamentary press office announced that a number of substantive issuesthe Working Group report had been raised bysubmitted to the GovernmentNational Security Council (President, Prime Minister and Speaker of the Parliament).
Turquoise Hill subsequently reported that a new working group of nine Members of Parliament had been established to take the Working Group report and draft a resolution directing the Cabinet on recommendations related to Oyu Tolgoi. The draft resolution was submitted to the Economic Standing Committee of the Parliament and subsequently passed in a plenary session of the Parliament of Mongolia relatingon November 21, 2019. The resolution was published on December 6, 2019. On December 11, 2019, Turquoise Hill reported that the resolution includes measures to improve the implementation of the Oyu Tolgoi Investment Agreement and Shareholders'the Shareholders Agreement, includingimprove the Mine Plan and explore and resolve options to have a product sharing arrangement or swap Mongolia’s equity holding of 34% for a special royalty. Turquoise Hill noted that the resolution will serve as the basis of future discussions in relation to the Oyu Tolgoi project developmentproject.
Recent Exploration on the Entrée/Oyu Tolgoi JV Property
Rio Tinto undertakes all exploration work on the Entrée/Oyu Tolgoi JV Property on behalf of joint venture manager OTLLC, through various agreements among OTLLC, Rio Tinto and costs, operating budget, project financing, management feesTurquoise Hill. Exploration during 2016 to 2019 on the Entrée/Oyu Tolgoi JV Property has focused on several near-surface targets and governance. On August 12, 2013, developmentprospects on both the Shivee Tolgoi mining licence (Airstrip and Gravity Ridge) and the Javkhlant mining licence (Southeast IP, Mag West, Bumbat Ulaan and Castle Rock) (refer to Figure 1 above).
The Airstrip target is located southwest of the airport and is defined by a gravity high anomaly inCarboniferous-age basalts, west of the north projection of the Oyu Tolgoi underground minetrend. A 2018 dipole-dipole IP survey, comprised of three, east-west oriented lines resulted in strong IP chargeability anomalies (~10mV/V) on Lines 1 and 2 that appear to widen out to the north. On the western edge of Line 2, a weaker (~7mV/V) chargeability anomaly is coincident with an isolated gravity high close to the boundary of granodiorite and basalt. A total of 58 shallow(30-120 m depth) polycrystalline diamond composite holes have been drilled here intersecting various intrusive phases of rock. No significant intervals of sulphide mineralization were encountered, although one hole did intersect 11 m grading 0.14% copper and 0.26 g/t gold from 52 m depth. A scissor hole below this did not intersect any significant mineralization. During 2018, additional alteration and age dating analysis was suspendedcompleted on the drill samples along with surface ground magnetic and gravity surveys and a Tromino survey (to determine the depth of overburden and to apply gravity survey corrections). Drilling was planned for 2018, but none was completed. Seven RC drill holes totaling 1,850.9 m were drilled during 2019. Entrée has not received detailed drill results however a summary report indicates that the holes targeted the IP and gravity anomalies at relatively shallow depths with no significant copper mineralization intersected. It is thought that the source of the IP (chargeability) anomaly was patchy pyrite within the host lithologies, which ranged from trace amounts up to approximately 6%. The rocks intersected by the drilling are Carboniferous-aged units dominated by basalt and basaltic andesite lava intruded by rhyolite and quartz monzonite with weak propylitic alteration. Hole EGRC146 returned 4 metres grading 0.93 g/t gold, 593 ppm copper and 2.8 g/t silver from 152.8 m to 156.8 m depth within basaltic andesite lava.
The Gravity Ridge target is based on a gravity survey that covered the Oyu Tolgoi trend from the Hugo North Extension northwards. The Gravity Ridge target area occurs between known porphyry at the Ulaan Khud prospect and the Airstrip target to the west. Previous consultant studies have identified this as a strong exploration target to test the northward continuation of the Oyu Tolgoi trend of mineralization in areas where it may be concealed beneath thrust plate lithologies or Cretaceous cover. Limited previous work has been completed at Gravity Ridge and OTLLC completed desktop reviews in 2019, as well as an IP geophysical survey. Three east-west oriented lines totaling 25 km were surveyed with IP and the results were pending at the resolutiontime of outstandingthis Annual Report. Entrée is not aware of any drilling that was completed during 2019.
The Southeast IP prospect comprises several clusters of 60 to 511 ppm copper soil anomalies, together covering about 3 km by 3 km, adjacent to a strong gradient array IP (chargeability) anomaly. The source of the IP anomaly was not evident through recentfollow-up reconnaissance work. These anomalies are located over Carboniferous-aged rocks and additional geological mapping and interpretation completed during 2018 (1:5000 scale covering 1,830 ha) infers that a Devonian window of rocks could occur immediately west of the IP anomaly. Further exploration, including drilling was budgeted for this prospect in 2018, however only additional geological mapping was completed. During 2019 additional field mapping was completed around the target area followed by 10 wide-spaced RC drill holes totaling 2,131.8 m. Entrée has not received detailed drill results; however a summary report indicates that the holes targeted the IP anomaly at relatively shallow depths and did not intersect any significant copper mineralization. Hole EJRC0073 did intersect minor malachite (copper-oxide) mineralization within a granodiorite dyke at 148 m depth. According to OTLLC shareholder issues.
At the Mag West prospect, a previous IP survey revealed a strong chargeability anomaly adjacent to a magnetic high anomaly that OTLLC Turquoise Hillbelieves has not been sufficiently tested. The main geological units are Carboniferous basaltic lapillic tuff and Rio Tinto signedCarboniferous granite. A previous soil sampling survey covering the Mine Planmagnetic and IP anomalies returned a patchy anomaly of Bi+Cu+Mo+Se+Te. Additional geological mapping was also completed (1:5000 scale covering 430 ha). Four target areas have been identified at Mag West based on the previous work. Although drilling was initially proposed for 2018, no holes were drilled. The 2019 exploration program has comprised additional geological work and ground truthing of anomalies, HALO spectral mapping, soil geochemistry reviews, reconnaissance work, and 21 rock chip samples. OTLLC reports that anomalous values of copper and molybdenum were returned from the rock chip sampling, however no details were provided to Entrée with the actual values. OTLLC believes that the rock sampling results support the existing soil survey results, with molybdenum more prevalent in the north, associated with a bleached and silicified lithocap. Seven RC drill holes to a depth of 250 m were budgeted for 2019, however the local communities requested that drilling be deferred so that it did not interfere with areas of winter shelter and sheep grazing. The plan is to drill these holes during the first quarter 2020.
Bumbat Ulaan is an early-stage target focused on a previously mapped lithocap near the western edge of the property. In 2018, the prospect saw additional geological mapping (1:5000 scale over 1,050 ha), along with gravity, IP and magnetic geophysical surveys and soil sampling. The lithocap trends northeast and is characterised by a series ofNE-SW silica dykes with moderate magnetite alteration and hematite stains, hosted within argillic altered rhyodacite. Five separate target areas have been identified based on the geophysical survey results, along with soil survey results and geological mapping/sampling. In 2019 exploration work has comprised HALO spectral mapping, review of soil geochemistry, geophysics (IP) and reconnaissance work. The HALO spectral measurements included 301 samples from the northern end of the target and 114 from the south portion. Results of the samples show the northern area hosts a narrow advanced argillic alteration zone with pyrophyllite-topaz-muscovite-illite and minor dickite assemblages. The advanced argillic zone at the southern part is slightly larger and is dominated by pyrophyllite-alunite-diaspore with strong hematite-goethite staining. OTLLC interprets the mineral occurrences within the two advanced argillic zones to be proximal to a potential heat source. In addition to the HALO sampling, 28 outcrop rock samples were collected at South Bumbat and of these, eight returned anomalous molybdenum values ranging from 11 to 20 ppm. Limited copper values were associated with the advanced argillic areas, potentially due to leaching as a result of the acidic environment. One sample from the periphery of the southern advanced argillic zone returned 0.18% copper, 967 ppm manganese and 457 ppm zinc, and is considered important since an anomalous manganese and zinc halo is quite common distal to a porphyry system with depletion at the center. A total of 33line-km of IP survey were also completed along five, east-west oriented lines. The results of this survey were pending at the time of this Annual Report. Ten RC drill holes to a depth of 250 m were budgeted for 2019, however due to proximity to winter shelters and some holes being within a 50 m buffer zone of cultural heritage sites, the drilling was delayed. All sites are being reviewed to see which are accessible and based on this some are beingre-located. Following this review the plan is to drill in the first quarter 2020.
Castle Rock is a porphyry-style target located about five km southwest of the Heruga deposit. Previous work at Castle Rock had identified this as a priority, near-surface target based on a polymetallic(Mo-As-Sb-Se-Te index) soil anomaly covering an area of about 1.5 km by 2.0 km coincident with a 400 m by 400 m area of outcropping quartz-sericite-illite altered dacite intrusive. In addition, a strong north-trending IP chargeability anomaly is coincident with the zone and two east-west dipole-dipole IP lines further described under "Oyuoutline the anomaly. During 2018 mapping identified scattered outcrops with sheeted and irregular quartz veining hosted within the dacite, along with occasional quartz breccia veins with oxidized sulphides. A gravity survey was completed during 2018, followed by two RC drill holes, EJRC0046 (250 m depth) and EJRC0047 (227 m depth). Both holes intersected Carboniferous-aged rock sequences dominated by andesitic tuff and andesitic to basaltic tuff (lithic and lapilli) with weak to moderate chlorite-epidote (porpylitic) or weak illite-sericite (phyllic) alteration and trace to 6% pyrite mineralization. These sequences were intruded by several fresh, unmineralized porphyritic dacite dykes, and occasional hornblende-biotite andesite dykes. There were no copper bearing minerals or porphyry-style alteration assemblages identified in the RC chips and no significant assay results were returned. According to OTLLC, the near-surface targeted chargeability anomaly has been explained by the abundant pyrite, however the lack of copper mineralization and porphyry alteration downgrades the near-surface exploration potential for this target. The potential for porphyry mineralization at depth remains a lower priority target. No drilling was budgeted for this prospect during 2019.
In addition to the above work the following field work was completed or was scheduled during 2019:
● | Geological Mapping: Ductile Shear area (west of the Airstrip Target) – 2,603 ha; West Javkhlant area – 4,288 ha |
● | Soil Sampling: Ductile Shear area – 380 samples |
● | Geochronology and Whole Rock Analysis: overall property – 63 samples for Whole Rock and 21 for Geochronology |
● | Rock Chip Sampling: Shivee Tolgoi – 39 samples; Javkhlant – 49 samples |
● | Geophysics: Ground magnetics at West Javkhlant (60% complete); DDIP survey at Javkhlant pending |
● | MIRA 3D Modelling: Mira Geoscience produced a 3D geological model over the entire Project with the following main outcomes: |
– | Advancement of the existing GOCAD Mining Suite project compilation for the Oyu Tolgoi study area |
– | Data compilation for the base of cover, which has been updated and used to cover-correct the gravity data |
– | A 3D fault network model has been constructed comprising of a total 37 faults |
– | Interpretation and modelling of the major formations across the area of interest (intrusives and faulted stratigraphy) |
– | A 3D geological block model was constructed from the various lithological and structural domains |
– | Density and susceptibility variations within the geological domains were determined using geologically constrained inversion techniques |
– | Soil geochemical data was reviewed and analysed, with a view towards vectoring towards mineralisation |
– | Modelling results and other targeting criteria were used to identify potential prospective areas which are to be combined with current target prioritisation work |
Soil geochemistry was also reviewed in selected portions of the Entrée/Oyu Tolgoi DevelopmentJV Property, including Bumbat Ulaan, West Mag (5 areas), West Grid (6 areas) and Funding" above, which providesT1231 (1 area; this target is in the Shivee Tolgoi licence to the east of OTLLC’s Oyu Tolgoi licence). The soil geochemistry interpretation work provided soil anomalies and alteration features based on all products/maps derived from univariate Cu, Mo, Au, Ag, Pb and Zn including Cu/Sc and Cu/Fe normalisation, RGB zonation and chalcophile long multivariate analysis. According to OTLLC, alteration mapping appears to be possible with Oyu Tolgoi soils due to the immature nature of the soil profile with reasonable proportions of lithic fragments. Spatially coherent zones of subtle potassic alteration are evident, along with some soils showing sericite/phyllic characteristics.On-going work includes interpretation of spectral data collected on the soils and lithogeochemistry. Soil anomalies have been prioritised and are being evaluated through ground truthing and rock chip sampling. Priority was placed on anomalies over 2019 drill targets to ensure drill planning was optimised.
Finally, during 2019 augite basalt sampling was completed over mapped Devonian-aged basalt to determine background values and an “immobile element ratio” fingerprint for these rocks to distinguish from Carboniferous augite basalt in sampling and drilling. The sampling will also help determine whether a pathway forwarddistal signature of Javkhlant I & II (Heruga Southwest Prospect) is detectable at surface and thus usable as a targeting approach in addressing outstanding shareholder mattersother areas of mapped seemingly unaltered augite basalt.
The areas to restart underground development.
Oyu Tolgoi Investment Agreement and Entrée
The contract area defined in the Oyu Tolgoi Investment Agreement includes the Javhlant and Shivee Tolgoi mining licences, including the Shivee West Property, which is 100% owned by Entrée and not currently subject to the Entrée/Oyu Tolgoi JV. The conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent to the Oyu Tolgoi Investment Agreement coming into effect. The Shivee Tolgoi and Javhlant mining licences were issued on October 27, 2009, and the Oyu Tolgoi Investment Agreement took legal effect on March 31, 2010.
The Ministry of Mining has advised Entrée that it considers the deposits on the Entrée/Oyu Tolgoi JV Property to be part of the series of Oyu Tolgoi deposits, which were declared to be Strategic Deposits under Resolution No 57 dated July 16, 2009 of the State Great Khural. However, at the time of negotiation of the Oyu Tolgoi Investment Agreement, Entrée 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.
OTLLC agreed, under the terms of theEarn-In Agreement, to use its best efforts to cause Entrée to be brought within the ambit of, made subject to and to be entitled to the benefits of the Oyu Tolgoi Investment Agreement or a separate stability agreement on substantially similar terms to the Oyu Tolgoi Investment Agreement. Entrée ishas been engaged in ongoing constructive 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 focussed on issues arising from Entrée'se’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 benefit from the stability that it would otherwise have if it were a party to the Oyu Tolgoi Investment Agreement. In order to receive the benefits of the Oyu Tolgoi Investment Agreement, the Government of Mongolia may require Entrée to agree to certain concessions, including with respect to the ownership of the Entrée/Oyu Tolgoi JV, Entrée LLC or the economic benefit of Entrée'se’s interest in the Entrée/Oyu Tolgoi JV Property, or the royalty rates applicable to Entrée'se’s share of the Entrée/Oyu Tolgoi JV Property mineralization. No agreements have been finalized.
Entrée/Oyu Tolgoi JV Property and the Mongolian Government
In June 2010, the Government of Mongolia passed Resolution 140, the purpose of which is to authorize the designation of certain land areas for "state“state special needs"needs” within certain defined areas, some of which include or are in proximity to the Oyu Tolgoi project. These state special needs areas are to be used for Khanbogd village development and for infrastructure and plant facilities necessary in order to implement the development and operation of the Oyu Tolgoi project. A portion of the Shivee Tolgoi licence is included in the land area that is subject to Resolution 140.
In June 2011, the Government of Mongolia passed Resolution 175, the purpose of which is to authorize the designation of certain land areas for "state“state special needs"needs” within certain defined areas in proximity to the Oyu Tolgoi project. These state special needs areas are to be used for infrastructure facilities necessary in order to implement the development and construction of the Oyu Tolgoi project. Portions of the Shivee Tolgoi and Javhlant licences are included in the land area that is subject to Resolution 175.
It is expected, but not yet formally confirmed by the Government, that to the extent that a consensual access agreement exists or is entered into between OTLLC and an affected licence holder, the application of Resolution 175 to the land area covered by the access agreement will be unnecessary. OTLLC has existing access and surface rights to the Entrée/Oyu Tolgoi JV Property pursuant to theEarn-In Agreement. If Entrée is unable to reach a consensual arrangement with OTLLC with respect to the Shivee West Property, Entrée'se’s right to use and access a corridor of land included in the state special needs areas for a proposed power line may be adversely affected by the application of Resolution 175. While the Mongolian Government would be responsible for compensating Entrée in accordance with the mandate of Resolution 175, the amount of such compensation is not presently quantifiable.
The Oyu Tolgoi Investment Agreement contains provisions restricting the circumstances under which the Shivee Tolgoi and Javhlant licences may be expropriated. As a result, Entrée considers that the application of Resolution 140 and Resolution 175 to the Entrée/Oyu Tolgoi JV Property will likely be considered unnecessary.
In March 2014, the Government of Mongolia passed Resolution 81, the purpose of which is to approve the direction of the railway line heading from Ukhaa Khudag deposit located in the territory of Tsogttsetsii soum, Umnugobi aimag, to the port of Gashuunshukhait and to appoint the Minister of Roads and Transportation to develop a detailed engineering layout of the base structure of the railway. On June 18, 2014, Entrée was advised by the Mineral Resources Authority of Mongolia ("MRAM"(“MRAM”) that the base structure overlaps with a portion of the Javhlant licence. By Order No. 123 dated June 18, 2014, the Minister of Mining approved the composition of a working group to resolve matters related to the holders of licences through which the railway passes. The Minister of Mining has not yet responded to a request from Entrée to meet to discuss the proposed railway, and no further correspondence from MRAM or the Minister of Mining has been received. It is not yet clear whether the State has the legal right to take a portion of the Javhlant licence, with or without compensation, in order to implement a national railway project, and if it does, whether it will attempt to exercise that right. While the Oyu Tolgoi Investment Agreement contains provisions restricting the circumstances under which the Javhlant licence may be expropriated, there can be no assurances that Resolution 81 will not be applied in a manner that has an adverse impact on Entrée.
Investment by Rio Tinto in Entrée and Turquoise Hill
In June 2005, following the announcement in May 2005 of the discovery of high grade mineralization at Hugo North Extension, Rio Tinto indirectly took part in a private placement in the Company and became its then largest shareholder.
Following Rio Tinto'sTinto’s investment in the Company in June 2005, Rio Tinto acquired, through a series of transactions, approximately 49% of Turquoise Hill'sHill’s issued and outstanding shares. On January 24, 2012, Rio Tinto announced that it had increased its ownership interest in Turquoise Hill to approximately 51%. At that time, Rio Tinto was deemed to have acquired beneficial ownership over the Common Shares of the Company owned by Turquoise Hill. At December 31, 2015,2019, Rio Tinto directly owned approximately 11.3%9.4% of the Company'sCompany’s issued and outstanding Common Shares. When combined with the Common Shares owned by Turquoise Hill, at December 31, 20152019 and March 13, 2020 Rio Tinto beneficially owned approximately 20.7%17.3% of the Company'sCompany’s issued and outstanding Common Shares.
Legislation
On November 1, 2013, a newan Investment Law came into effect in Mongolia. The new law iswas aimed at reviving foreign investment by easing restrictions on investors (including foreign and domestic) in key sectors such as mining and by providing greater certainty on the taxes they must pay.pay and certain guarantees in relation to their investments in Mongolia. The new law replaces two previous laws, includingInvestment Law stabilizes the tax environment by way of issuing “stabilization certificate(s)” to investors who meet the criteria stated in the law. Within the scope of tax stabilization, the following four taxes will be stabilized: (i) legal entity income tax; (ii) customs duties; (iii) value added tax; and (iv) mineral royalties. The Investment Law also provides for the ability of investors in major projects (requiring more than MNT 500 billion (approximately $181 million) investment) to enter into an investment agreement with the Government of Mongolia, on the Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance ("SEFIL"). The full impact of the new Investment Law is not yet known.
On January 16, 2014, the Mongolian Parliament adopted a new State Minerals Policy.Policy until 2025. The main focus of the policy is to establish a stable investment environment; improve the quality of mineral exploration, mining and processing; encourage the use of environmentally friendly and modern technology; and strengthen the competitiveness of the Mongolian mining sector on the international market. The State Minerals Policy is also intended to serve as the basis for amendments to the existing Minerals Law and other laws relating to the mining sector.
The State Minerals Policy contemplates the establishment of a "Policy Council"“Policy Council” with representatives of the State, investors, professional associations and the public, to make recommendations and support the implementation of the State Minerals Policy. The State Minerals Policy sets out a broad timetable for implementation of its objectives, with legislative reform to be implemented in 2014 and 2015, implementation of the principles of the State Minerals Policy to take place between 2014 and 2025, and assessment of the implementation of the Minerals Policy to occur between 2020 and 2025.
On February 18, 2015, the Mongolian Parliament adopted the Amendment Law to the Minerals Law of 2006 (the "2015 Amendment"“2015 Amendment”), which permits a licence holder to negotiate with the Government of Mongolia with respect to an exchange of the Government'sGovernment’s 34% (50% in cases where exploration has been funded by the State budget) equity interest in a licence holder with a Strategic Deposit for an additional royalty payable to the Government. The amount of the royalty payment would vary depending on the particulars of the Strategic Deposit but cannot exceed 5 percent. The rate of this royalty payment shall be approved by the Government of Mongolia. The full impact of the 2015 Amendment is not yet known.
On November 10, 2017, the Parliament of Mongolia amended the General Tax Law, the Corporate Income Tax Law, the Personal Income Tax Law, the Minerals Law, the Land Law and the Legal Entities Registration Law, which became effective on January 1, 2018, to introduce the concept of an “ultimate holder” of a legal entity for tax purposes for the first time (collectively, the “2017 Amendments”). Under the 2017 Amendments, any change of an ultimate holder of a legal entity that maintains a minerals licence is deemed to be a sale of the minerals licence and is subject to a 30% corporate income tax on the total income earned. The legal entity holding the minerals licence bears the tax obligation, not the person who earns the income from the transaction. In general, taxable income will be assessed based on the value of the minerals licence,pro-rated to the number or percentage of shares transferred from the ultimate holder. On December 25, 2017, the Ministry of Finance passed Decree No. 380 setting out the methodology to determine the value of a minerals licence, which was annulled by the below mentioned Decree No. 302 dated December 31, 2019.
On March 22, 2019, the Parliament of Mongolia substantially revised key tax laws including the General Law on Taxation, the Corporate Income Tax Law, the Value Added Tax Law and the Personal Income Tax Law. The new tax laws came into effect on January 1, 2020. Under the new Corporate Income Tax Law (the “Restated Version”), ring-fencing rules were introduced pursuant to which income and expenses that are incurred for different mining licences must be accounted separately for tax purposes. However, the Restated Version provides that a taxpayer may file consolidated statements if the areas covered by the minerals licences held by such taxpayer lie adjacent to one another or the types of products to be mined from minerals licences are the same. As a result, Entrée is allowed to prepare consolidated profit and loss statements for all income and expenses incurred on the Shivee Tolgoi and Javhlant mining licences. In addition, the Restated Version of the Corporate Income Tax Law reduces the withholding tax on a direct or indirect transfer of a minerals licence (in whole or in part) from 30% on a gross basis (as provided for under the 2017 Amendments) to 10% on the basis of the minerals licence value with certain deductions allowed. For an indirect transfer, the taxable income will be calculated from the valuation of the minerals licence in proportion to the percentage of shares or interests or voting rights sold or transferred by the ultimate holder in relation to the shares of the minerals licence holder. The new tax laws require the Cabinet, Ministry of Finance and certain MembersMongolian Tax Authority to release a number of Parliament have released draft lawsimplementing guidelines. By its Decree No. 302, the Minister of Finance adopted a guideline on December 31, 2019 which includes the methodology to determine the value of a minerals licence and draftregulation on imposing taxes, which is currently in effect. The full impact of the tax reform package is not yet known.
On December 5, 2018, the Minister for Mining and Heavy Industry submitted, on behalf of the Government of Mongolia, proposed amendments to the taxMinerals Law, the Petroleum Law, the Petroleum Product Law and other relevant laws thereto, aimed at regulating the minerals sector in greater detail to eliminate legal duplication and gaps in the related legislation of Mongolia which include provisions relatedand to the taxation of foreign legal entities operating in Mongoliaresolve discrepancies between national and local governments and minerals companies in general. If certain provisions of these amendments were adopted by Parliament as currently drafted, they could adversely affect Entree's interests.licence holders. It is not possible to determine when, if ever, these amendments would be adopted and in what form.
On March 22, 2019, the Parliament of Mongolia adopted the Law on Amendments to the Minerals Law of 2006, which provides that a minerals licence holder must notify, and register with, the relevant tax authority any ultimate holder changes in accordance with the procedure provided for in the Restated Version of the General Tax Law. Any failure to do so will result in the termination of the minerals licence by the State body.
On November 14, 2019, the Parliament of Mongolia approved a number of constitutional amendments which will take effect on May 25, 2020. Among other things, the amendments clarify the purpose and principles of the use of natural resources. Natural resources would be defined as the public property of the State rather than the property of the State, which emphasizes that the policies on natural resources should be defined by Parliament, the representatives of the people, for the public interest. The constitutional amendments provide the basis to allocate a major part of social and economic benefits from Strategic Deposits to the people through the National Resources Fund, which is newly incorporated in the Constitution. Given the constitutional amendments, the Minister for Mining and Heavy Industry is expected to propose significant amendments to the Minerals Laws. It is not possible to determine when, if ever, these amendments would be adopted and in what form.
Sandstorm
Amended and Restated Equity Participation and Funding Agreement
On February 14, 2013, the Company entered into an Equity Participation and Funding Agreement (the "2013 Agreement"“2013 Agreement”) with Sandstorm Gold Ltd. ("Sandstorm"(“Sandstorm”). Pursuant to the 2013 Agreement, Sandstorm provided aan upfront refundable deposit (the “Deposit”) of $40 million upfront deposit (the "Deposit") to the Company. In return, theThe Company will use future payments that it receives from its mineral property interests to purchase and deliver metal credits to Sandstorm's metal account.
On February 23, 2016, the Company and Sandstorm entered into an Agreement to Amend the 2013 Agreement, pursuant to which providesthe Company refunded 17% of the Deposit ($6.8 million) (the “Refund”) thereby reducing the Deposit to $33.2 million for a 17% reduction in the metal credits that the Company is required to sell and deliver to Sandstorm under the 2013 Agreement. In return, the Company refunded 17% of the Deposit by payingSandstorm. The Refund was paid with $5.5 million in cash and issuingthe issuance of $1.3 million of Common Shares (thereby reducing the Deposit to $33.2 million).Shares. At closing on March 1, 2016, the parties entered into an Amended and Restated Equity Participation and Funding Agreement dated February 14, 2013, and amended March 1, 2016 (the "Amended“Amended Funding Agreement"Agreement”).
28.1% of Entré |
21.3% of Entré |
Upon the delivery of metal credits, Sandstorm will make a cash payment to the Company equal to the lesser of the prevailing market price and $220 per ounce ("/oz")$220/oz of gold, $5/oz of silver and $0.50 per pound ("/lb")$0.50/lb of copper (subject to inflation adjustments). After approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the entire Entrée/Oyu Tolgoi JV Property (as currently defined), the cash payment will be increased to the lesser of the prevailing market price and $500/oz of gold, $10/oz of silver and $1.10/lb of copper (subject to inflation adjustments). To the extent that the prevailing market price is greater than the amount of the cash payment, the difference between the two will be credited against the Deposit (the net amount of the Deposit being the "Unearned Balance"“Unearned Balance”).
This arrangement does not require the delivery of actual metal, and the Company may use revenue from any of its assets to purchase the requisite amount of metal credits.
Under the Amended Funding Agreement, Sandstorm has a right of first refusal, subject to certain exceptions, on future production-based funding agreements. The Amended Funding Agreement also contains other customary terms and conditions, including representations, warranties, covenants and events of default. The initial term of the Amended Funding Agreement is 50 years, subject to successive10-year extensions at the discretion of Sandstorm.
In addition, the Deposit and a pro rata reduction in the number of metal credits deliverable to Sandstorm in the event of a partial expropriation of Entrée's economic interest, contractually or otherwise, in the Entrée/Oyu Tolgoi JV Property. The Amended Funding Agreement provides that the Company will not be required to make any further refund of the Deposit if Entrée'se’s economic interest is reduced by up to and including 17%. If there is a reduction of greater than 17% up to and including 34%, the Amended Funding Agreement provides the Company with greater flexibility and optionality in terms of how the Company willability to refund a corresponding portion of the Deposit including not requiring Entréein cash or Common Shares or any combination of the two at the Company’s election, in which case there would be a further corresponding reduction in deliverable metal credits. If the Company elects to refund cash. Sandstorm with Common Shares, the value of each Common Share will be equal to the volume weighted average price (“VWAP”) for the five (5) trading days immediately preceding the 90th day after the reduction in Entrée’s economic interest.
In no case will Sandstorm become a “control person” under the Amended Funding Agreement. In the event an issuance of Common Shares would cause Sandstorm to become a “control person”, the maximum number of Common Shares will be issued, and with respect to the value of the remaining Common Shares, 50% will not be refunded (and there will not be a corresponding reduction in deliverable metal credits) and the remaining 50% will be refunded by the issuance of Common Shares in tranches over time, such that the number of Common Shares that Sandstorm holds does not reach or exceed 20%. All Common Shares will be priced in the context of the market at the time they are issued.
In the event of a full expropriation, the remainder of the Unearned Balance after the foregoing refunds must be returned in cash with interest.
Securities Held by Sandstorm
On March 1, 2013, Sandstorm purchased 17,857,142 Common Shares of the Company at a price of C$0.56 per Common Share for gross proceeds of approximately C$10 million. As at December 31, 2015, Sandstorm held approximately 12.2% of the Company's issued and outstanding Common Shares.
On March 1, 2016, the Company issued 5,128,604 Common Shares to Sandstorm at a price of C$0.3496 per Common Share pursuant to the Agreement to Amend described under "Amended“Item 4. Information on the Company – B. Business Overview –Sandstorm – Amended and Restated Equity Participation and Funding Agreement"Agreement” above. The price was calculated using the volume weighted average priceVWAP of the Company's sharesCompany’s Common Shares on the TSX for the 15 trading days preceding February 23, 2016, the effective date of the Agreement to Amend. Following closing,
On January 11, 2017, Sandstorm acquired 914,634 units of the Company at a price of C$0.41 per unit as part of a largernon-brokered private placement. See “Item 4. Information on the Company – B. Business Overview –Non-Brokered Private Placement” below.
As at December 31, 2019, Sandstorm held 22,985,74636,136,880 Common Shares, or approximately 15.1%20.6% of the Company's issued and outstanding Common Shares of the Company (March 13, 2020 – 37,136,880 Common Shares or ~21.2%), and Replacement Warrants (as defined in “Item 4. Information on the Company – B. Business Overview –Non-Brokered Private Placement” below) to purchase an additional 457,317 Common Shares.
Under the Amended Funding Agreement, Sandstorm is required to vote its Common Shares of the Company as the Company'sCompany’s Board specifies with respect to any proposed acquisition of the Company, provided the potential acquirer agrees to execute and deliver to Sandstorm a deed of adherence to the Amended Funding Agreement.
Non-Brokered Private Placement
On January 11, 2017, the Company closed the first of two tranches of anon-brokered private placement of units at a price of C$0.41 per unit (the“Non-Brokered Private Placement”). The Company issued 17,309,971 units for gross proceeds of C$7,097,088. A second tranche of 1,219,513 units closed on January 13, 2017 for additional gross proceeds of C$500,000.
Each unit (a “Unit”) consisted of one Common Share of the Company andone-half of one transferable Common Share purchase warrant. Each whole warrant entitled the holder to acquire one additional Common Share of the Company for a royalty agreement dated February 14, 2013period of five years at a price of C$0.65. No commissions or finders’ fees were payable in connection with theNon-Brokered Private Placement.
As part of the Arrangement, warrantholders of the Company received Mason Resources common share purchase warrants (“Mason Resources Warrants”) which were proportionate to, and reflective of the terms of, their existing warrants of the Company. In exchange for each existing warrant, the holder was issued one replacement Common Share purchase warrant of the Company (a “Replacement Warrant”) and 0.45 of a Mason Resources Warrant. On May 23, 2017, warrantholders of the Company received an aggregate 4,169,119 Mason Resources Warrants each with an exercise price of C$0.23, and an aggregate 9,264,735 Replacement Warrants each with an exercise price of C$0.55. The exercise prices assigned to the Replacement Warrants and the Mason Resources Warrants reflect the allocation of the original exercise price of the existing warrants between Sandstormthe Replacement Warrants and Entrée, Sandstorm purchased a 0.4% NSR royaltythe Mason Resources Warrants issued, based on the future salerelative market value of any metalsMason Resources and minerals derivedthe Company following completion of the Arrangement.
Net proceeds from theNon-Brokered Private Placement were used to support the restructuring of the Company’s business into two well-funded, separate publicly traded companies, for the advancement of Entrée’s core assets in Mongolia, and for general corporate purposes.
Then directors and officers of the Company and their associates acquired an aggregate 1,144,902 Units on the same terms and conditions as other subscribers. Other then insiders of the Company and their associates acquired an aggregate 5.5 million Units, including 914,634 Units acquired by Sandstorm. See “Item 4. Information on the Company – B. Business Overview – Sandstorm – Securities Held by Sandstorm” above and “Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions” below.
Arrangement
On May 9, 2017, the Company completed aspin-out of Entrée’s Ann Mason Project in Nevada and Lordsburg property in New Mexico into a portionnewly incorporated wholly-owned subsidiary, Mason Resources, through a court approved plan of arrangement under Section 288 of the BCBCA. The Company’s shareholders received common shares of Mason Resources in proportion to their shareholdings in the Company by way of a share exchange, pursuant to which each existing Common Share of the Company held as of the effective date of the Arrangement was exchanged for one “new” Common Share of the Company and 0.45 of a common share of Mason Resources. A total of 77,805,786 common shares of Mason Resources were distributed to the Company’s shareholders. There was no change to shareholders’ interests in the Company.
The Company transferred to Mason Resources all of the issued and outstanding shares of Entrée U.S. Holdings Inc., which indirectly held the Ann Mason Project (which includesand the AnnLordsburg property, along with $8.84 million in cash. The result of the Arrangement was two separate and focused, well-capitalized entities, each with a high quality advanced project providing new and existing shareholders with optionality as to investment strategy and risk profile.
Optionholders and warrantholders of the Company received replacement options and Replacement Warrants of the Company and Mason Resources Warrants and Blue Hill deposits) in Nevada. Consideration foroptions of Mason Resources which were proportionate to, and reflective of the royalty was $5 million. In addition, Entrée granted to Sandstorm a rightterms of, first refusal intheir original options and warrants of the event Entrée wishes to enter into a future royalty or streaming agreementCompany.
Mason Resources’ common shares commenced trading on the AnnTSX on May 12, 2017 under the symbol “MNR”, and on the OTCQB on November 9, 2017 under the symbol “MSSNF”.
On December 19, 2018, Mason Project.
Environmental Compliance
Any current and future exploration and development activities, as well as future mining and processing operations, if warranted, are subject to various federal, state and local laws and regulations in the countries in which weEntrée and its partners conduct ourtheir activities. These laws and regulations govern the protection of the environment, prospecting, development, production, taxes, labour standards, occupational health, mine safety, toxic substances and other matters. Entrée expects tothat it and its partners will be able to comply with thosethese laws and does not believe that compliance will have a material adverse effect on ourits competitive position. Entrée intends to obtain all licences and permits required by all applicable regulatory agencies in connection with our miningits operations and exploration activities. Entrée intends to maintain standards of compliance consistent with contemporary industry practice.
Holders of an exploration or mining licence in Mongolia must comply with environmental protection obligations established in the Environmental Protection Law of Mongolia, Law of Environmental Impact Assessment and the Minerals Law. These obligations include: preparation of an Environmental Impact Assessment for exploration and mining proposals; submitting an annual environmental protection plan; posting an annual bond against completion of the protection plan; and submitting an annual environmental report.
Environmental bonds have been paid to the local governments, Khanbogd and Bayan-Ovoo soums,soums, together equal to approximately $930 and $1,445 respectively.3,049,000 tugriks (approximately $1,104). These bonds cover current environmental liabilities for exploration work undertaken at the Shivee West.West Property. These amounts are refundable to Entrée on request once all environmental work has been completed to the satisfaction of the local soums.soums. Entrée also pays to the local soums annual fees for water, land and road usage.
Development and exploration on the Entrée/Oyu Tolgoi JV Property is controlled and managed by Rio Tinto on behalf of OTLLC, which is responsible for all environmental compliance.
Competition
Entrée operates in a very competitive industry and production industry is largely unintegrated. We competecompetes with other exploration companies, lookingmany of which have greater financial resources and technical facilities for the identification, acquisition and development of mineral resource properties and assets, as well as for the resources that can be produced from themrecruitment and in hiring skilled professionals to direct related activities. While we compete with other exploration companiesretention of qualified employees and consultants.
Specialized Skills and Knowledge
Entrée’s business requires specialized skills and knowledge in the effortareas of geology and engineering, strategic planning, corporate finance, government relations, financial modelling, accounting, compliance, regulatory matters, negotiation and drafting of agreements and corporate governance, among others. To date, Entrée has been able to locate and licence mineral resource properties, we do not compete with them for the removal or sale of mineral products from our properties, norretain such professionals, employees and consultants and believes it will we do so if we should eventually discover the presence of them in quantities sufficientcontinue to make production economically feasible. Readily available markets exist world-wide for the sale of copper, gold and other mineral products. Therefore, we will likely be able to sell any copper, golddo so.
Business Cycles
The mining business is subject to mineral price cycles. The marketability of minerals and mineral concentrates is also affected by worldwide economic cycles. If the global economy stalls and commodity prices decline as a result, a continuing period of lower prices could significantly affect the economic potential of Entrée’s current property interests and result in Entrée or mineral products that we are ableits partners determining to identifycease work on, or drop their interests in, some or all of such properties. In addition to commodity price cycles and produce. Our ability torecessionary periods, activity may also be competitiveaffected by seasonal and irregular weather conditions in the market over the long term is dependent upon our ability to hire qualified people as well as the quality and amount of mineralization discovered, cost of production and proximity to our market. Due to the large number of companies and variables involved in the mining industry, it is not possible to pinpoint our direct competition.
Seasonality
The Entrée/Oyu Tolgoi JV Property and Shivee West areProject is located in the South Gobi region of Mongolia, which has a continental, semi-desert climate. The spring and autumn seasons are cool, summers are hot, and winters are cold. The climatic conditions are such that operations can run throughout the year on a continuous shift basis, with minor disruptions expected.
Economic Dependence
Entrée is heavily dependent upon the results obtained under agreements, including the Entrée/Oyu Tolgoi JVA, for the exploration and extraction of minerals.
Foreign Operations
Entrée’s property interests are all located in foreign countries.
C. Organizational Structure
The Company conducts its business and own ourowns its property interests through the 11four subsidiaries set out in ourthe organizational chart below. All of ourthe Company’s subsidiaries are 100% owned.
*The remaining 0.01% is held by Entrée Resources International Ltd.
D. Property, Plants and Equipment
Entrée is a Canadian mineral exploration company based in Vancouver, British Columbia, focused on the worldwide exploration and development of copper, gold and molybdenum prospects.
Entrée is committed to make lease payments totalling $307,762$0.3 million over its two yearthree-year office lease in Vancouver, Canada and two office, three warehouse and four accommodation leases in the United States.
Entrée has an interest in one material property, the advanced Entrée/Oyu Tolgoi JV Property. The Entrée/Oyu Toloi Property forms an integral part of the Oyu Tolgoi project in southern Mongolia.
ENTRÉE/OYU TOLGOI JV PROJECT, MONGOLIA
In addition,2017, the Company is considering strategic partnerships, joint ventures or other similar arrangements that would facilitate the development of the project.
In 2019, subsequent to completion of 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 reflected in OTFS16 and the 2018 Technical Report. A Definitive Estimate is expected to be delivered in the second half of 2020, reflecting the preferred mine design approach and the impact on mineral resources and reserves estimates and overall cost and schedule for the Ann Mason deposit. Approximately 95% ofunderground development. Once OTLLC, Turquoise Hill and Rio Tinto have determined the mineralization constrained withinpreferred mine design approach and delivered the Phase 5 pit is now classified as either MeasuredDefinitive Estimate, the Company will be able to assess the potential net impact, whether positive or Indicated resources withnegative, on Entrée/Oyu Tolgoi JV Property production and financial assumptions and outputs from the remaining 5% as Inferred resources. The 2015 PEA also includes preliminary resultstwo alternative cases, the 2018 Reserve Case and the 2018 PEA. Until such time, the Company considers the information set out below of a detailed metallurgical program, designedscientific or technical nature regarding the Entrée/Oyu Tolgoi JV Project to better characterizebe current.
Information set out below of a scientific or technical nature regarding the metallurgical processes and recoveries in the 2015 PEA and to support a future Pre-Feasibility study. While the resource estimate for Blue HillEntrée/Oyu Tolgoi JV Project is included in the 2015 PEA technical report, it was not evaluated as part of the 2015 PEA
Introduction
The Project Descriptionconsists of two contiguous mining licences, Shivee Tolgoi (ML 15226A) and Location
The Entrée/Oyu Tolgoi JV Project is locatedcurrently divided into two contiguous areas, referred to as “properties”. Entrée is in west-central Nevada, approximately 75 kilometres southeast of Reno, 45 kilometres southeast of Carson City (the capital of Nevada), and 7 kilometres west ofjoint venture with OTLLC over the town of Yerington. The eastern side of the Ann Mason Project is situated within the Yerington Mining District, a historical copper mining district in Lyon County. The Ann Mason Project is centered at approximately latitude 39°00' N and longitude 119°18' W, within both Douglas and Lyon Counties.
Entrée’s joint venture partner, OTLLC, is jointly owned by the Mongolian Government and Turquoise Hill. Rio Tinto, which holds the majority interest in Turquoise Hill, is the operator for both the Oyu Tolgoi mining licence and the Entrée/Oyu Tolgoi JV Property.
The high-angle, northwest-trending, southwest dipping 1A Fault marksHugo North Extension deposit is at the current southwest margin of >0.15% copper mineralization in the deposit, juxtaposing propylitically altered rocks with pyrite mineralization in the hanging wall against potassically-altered rocks with copper-molybdenum mineralization in the footwall. The 1A Fault and other northwest-trending structures offset the intrusive contact between granodiorite (Jgd) and porphyritic quartz monzonite (Jpqm) to successively deeper levels towards the west and southwest. Copper-molybdenum mineralization in the footwallnorth end of the fault remains open at depth along12.4 km long Oyu Tolgoi series of porphyry copper-gold deposits, and the entire strike length of the fault.
The copper-mineralized sulphide zone underlies the southern half of the oxide mineralization and continues to depth towards the southeast, below the Blue Hill Fault. Mineralization consists of varying quantities of pyrite, chalcopyrite, and molybdenite. Local, higher-grade sulphide mineralization commonly occurs within zones of sheeted veins containing chalcopyrite, magnetite and secondary biotite. Significant amounts of disseminated molybdenum mineralization have been observed locally, oftenOyu Tolgoi mining operation is being developed by OTLLC in contact with dykes. To the northwest, below the oxides only a few holes have tested the sulphide potential; however, in this direction the sulphides appear to be increasingly pyritic with only minor amounts of copper.
Phase 2 metre intervals once mineralized rocksis under construction. It will consist of Lift 1 of the Yerington batholith were encountered or hole conditions dictated the change to core. Depths of holes ranged from 275 metres to 885 metres, depending on position within the Phase 5 pit, and hole angles varied from -60 to -90 degrees.
Exploration Area | No. of Holes | Length (m) | Hole Type | |||
Ann Mason | deposit | 77 | 56,163 | 76 diamond, including 63 with RC pre-collar; 1 RC hole | ||
periphery | 5 | 2,117 | 3 diamond with RC pre-collar; 2 RC | |||
Blue Hill | deposit | 34 | 7,701 | 8 diamond, including 3 with RC pre-collar; 26 RC | ||
periphery | 12 | 3,804 | 7 diamond; 5 RC | |||
Blackjack IP (Northeast) | 2 | 871 | 1 diamond with RC pre-collar; 1 RC pre-collar, | |||
Roulette | 7 | 2,308 | 3 diamond with RC pre-collar; 2 diamond daughter holes; 2 RC pre-collar | |||
Total | 137 | 72,963 |
Classification | Tonnage (Mt) | Grade | Contained Metal | ||||||
Cu (%) | Mo (%) | Au (g/t) | Ag (g/t) | Cu (Mlb) | Mo (Mlb) | Au (Moz) | Ag (Moz) | ||
Measured | 412 | 0.33 | 0.006 | 0.03 | 0.64 | 3,037.6 | 58.1 | 0.37 | 8.46 |
Indicated | 988 | 0.31 | 0.006 | 0.03 | 0.66 | 6,853.3 | 128.5 | 0.97 | 21.00 |
Measured and Indicated | 1,400 | 0.32 | 0.006 | 0.03 | 0.65 | 9,890.9 | 186.6 | 1.33 | 29.46 |
Inferred | 623 | 0.29 | 0.007 | 0.03 | 0.66 | 3,987.2 | 96.2 | 0.58 | 13.16 |
Zone | Cu Cut-off (%) | Tonnes (Mt) | Grade Cu (%) | Contained Cu (Mlb) | Mo (%) | Au (g/t) | Ag (g/t) |
Oxide Zone | 0.10 | 47.44 | 0.17 | 179.37 | - | - | - |
Mixed Zone | 0.10 | 24.69 | 0.18 | 98.12 | - | - | - |
Oxide + Mixed Zones | 0.10 | 72.13 | 0.17 | 277.49 | - | - | - |
Sulphide Zone | 0.15 | 49.86 | 0.23 | 253.46 | 0.005 | 0.01 | 0.3 |
Phase | Measured (%) | Indicated (%) | Inferred (%) |
1 | 94.9 | 4.9 | 0.2 |
2 | 73.4 | 24.0 | 2.6 |
3 | 40.5 | 52.7 | 6.8 |
4 | 40.6 | 55.9 | 3.5 |
5 | 23.9 | 66.7 | 9.4 |
Total | 43.9 | 51.3 | 4.9 |
Product | Grade | Recovery, % | ||||||
Cu, % | Mo, % | Au, g/t | Ag, g/t | Cu | Mo | Au | Ag | |
Cu Concentrate | 30.0 | 0.1 | 1.65 | 36.0 | 92.0 | 17.1 | 57.0 | 55.0 |
Mo Concentrate | 2.5 | 50.0 | 0.6 | 15 | 0.1 | 50.0 | 0.2 | 0.2 |
Product | Grade | Recovery, % | ||||
Cu, % | Au, g/t | Ag, g/t | Cu | Au | Ag | |
Cu Conc – Yr 1-3 | 27.3 | 1.32 | 32.2 | 91.8 | 57.0 | 55.0 |
Cu Conc – Yr 4-9 | 28.5 | 1.81 | 41.6 | 91.6 | 57.0 | 55.0 |
Category | Pre-Production and Year 1 Capital ($M) | Sustaining Capital (Years 2-21) ($M) | Total Capital ($M) |
Open Pit | 450.6 | 88.7 | 539.3 |
Processing | 452.2 | 4.5 | 456.7 |
Infrastructure | 180.7 | 24.5 | 205.1 |
Environmental | 2.1 | 68.5 | 70.6 |
Owner's and Indirect Costs | 162.7 | 1.6 | 164.3 |
Contingency | 102.8 | 3.2 | 106.0 |
Total | 1,351.0 | 191.0 | 1,542.0 |
Category | Mined ($/t) | Mill Feed ($/t) | Cu Concentrate ($/t) | ||||
Mining (mill feed and waste) | 1.50 | 4.13 | 455 | ||||
Processing | - | 4.59 | 506 | ||||
G&A | - | 0.26 | 29 | ||||
Subtotal On-Site Costs | - | 8.98 | 990 | ||||
Transportation, Port Costs, Shipping | - | 0.87 | 96 | ||||
Royalties | - | 0.07 | 7 | ||||
Total Pre-Tax Operating Cost | - | 9.92 | 1,093 | ||||
Taxes | - | 1.42 | 157 | ||||
Total Post-Tax Operating Cost | - | 11.34 | 1,250 |
Metal | Unit | Low Case | Base Case | High Case |
Copper | $/lb | 2.75 | 3.00 | 3.25 |
Molybdenum | $/lb | 9.00 | 11.00 | 13.00 |
Silver | $/oz | 15.00 | 20.00 | 25.00 |
Gold | $/oz | 1,100.00 | 1,200.00 | 1,300.00 |
Cost Category | Unit | Low Case | Base Case | High Case |
Operating Costs | ||||
Open Pit Mining | ($M) | 3,625.0 | 3,625.0 | 3,625.0 |
Processing | ($M) | 4,027.3 | 4,027.3 | 4,027.3 |
G&A | ($M) | 254.8 | 254.8 | 254.8 |
Concentrate Trucking | ($M) | 521.8 | 521.8 | 521.8 |
Port Costs | ($M) | 43.3 | 43.3 | 43.3 |
Shipping to Smelter | ($M) | 199.0 | 199.0 | 199.0 |
Subtotal Operating Costs | ($M) | 8,671.2 | 8,671.2 | 8,671.2 |
Capital Costs | ||||
Open Pit Mining | ($M) | 539.3 | 539.3 | 539.3 |
Processing | ($M) | 456.7 | 456.7 | 456.7 |
Infrastructure | ($M) | 205.1 | 205.1 | 205.1 |
Environmental Costs | ($M) | 70.6 | 70.6 | 70.6 |
Indirect | ($M) | 164.3 | 164.3 | 164.3 |
Contingency | ($M) | 106.0 | 106.0 | 106.0 |
Subtotal Capital Costs | ($M) | 1,542.0 | 1,542.0 | 1,542.0 |
Revenue (after smelting, refining, roasting, payables) | ($M) | 13,840.2 | 15,285.5 | 16,730.7 |
Royalties (0.4%) | ($M) | 52.3 | 58.1 | 63.9 |
Net Revenue( less Royalties) | ($M) | 13,787.9 | 15,227.4 | 16,666.9 |
Pre-Tax Net Cash Flow (Revenue-Operating-Capital) | ($M) | 3,574.7 | 5,014.2 | 6,453.7 |
Total Tax | ($M) | 844.8 | 1,241.4 | 1,659.1 |
Post-Tax Net Cash Flow | ($M) | 2,730.0 | 3,772.8 | 4,794.6 |
Net Present Value (Pre-Tax) | ||||
NPV @ 5% | ($M) | 1,184 | 1,937 | 2,690 |
NPV @ 7.5% | ($M) | 591 | 1,158 | 1,724 |
NPV @ 10% | ($M) | 205 | 641 | 1,078 |
IRR | (%) | 11.9 | 15.8 | 19.4 |
Payback Period | Years (Year paid) | 8.3 (Yr 9) | 6.4 (Yr 7) | 5.2 (Yr 6) |
Net Present Value (Post-Tax) | ||||
NPV @ 5% | ($M) | 815 | 1,379 | 1,928 |
NPV @ 7.5% | ($M) | 339 | 770 | 1,189 |
NPV @ 10% | ($M) | 30 | 366 | 694 |
IRR | (%) | 10.3 | 13.7 | 16.8 |
Payback Period | Years (Year paid) | 8.7 (Yr 9) | 6.9 (Yr 7) | 5.7 (Yr 6) |
Cost Category | Unit | Value | |
Mill Feed | |||
Rate | t/d | 120,000 | |
Grade | Cu% | 0.30 | |
Total Operating Cost | ($/t mill feed) | 9.92 | |
Mine Life | (years) | 21 | |
Initial Capital Costs (Year -3, Year -2, Year -1) | ($M) | 1,177.7 | |
Year 1 Capital Costs | ($M) | 173.4 | |
Sustaining Capital Cost | ($M) | 191.0 | |
Total Mine Capital | ($M) | 1,542.0 | |
Payable Copper | |||
Initial 5 Years Average Annual Production | (Mlb) | 229 | |
Average Annual Production – LOM | (Mlb) | 241 | |
Total LOM Production | (Mlb) | 5,065 | |
Payable Molybdenum | |||
Initial 5 Years Average Annual Production | (Mlb) | 2.2 | |
Average Annual Production – LOM | (Mlb) | 2.2 | |
Total LOM Production | (Mlb) | 46.0 | |
Recovered Precious Metals | Gold | Silver | |
Initial 5 years Average Annual Production | (oz) | 13,500 | 302,200 |
Average Annual Production - LOM | (oz) | 21,000 | 434,400 |
Total LOM Production | (oz) | 441,300 | 9,122,800 |
Copper Concentrate | |||
Initial 5 Years Average Annual Production | (dmt) | 360,000 | |
Average Annual Production – LOM | (dmt) | 379,100 | |
Total LOM Production | (dmt) | 7,961,600 | |
Molybdenum Concentrate | |||
Initial 5 Years Average Annual Production | (dmt) | 1,900 | |
Average Annual Production – LOM | (dmt) | 1,800 | |
Total LOM Production | (dmt) | 38,400 | |
Cash Costs – Year 1 to Year 5 | Pre-tax | Post-tax | |
Copper Cash Cost without Credits (Mo, Au, Ag) | ($/lb) | 2.08 | 2.13 |
Copper Cash Cost with Credits (Mo, Au, Ag) | ($/lb) | 1.89 | 1.94 |
All In Sustaining Cost (AISC) without Credits (Mo, Au, Ag) | ($/lb) | 2.28 | 2.32 |
All In Sustaining Cost (AISC) with Credits (Mo, Au, Ag) | ($/lb) | 2.09 | 2.13 |
Cash Costs – Year 1 to Year 21 | Pre-tax | Post-tax | |
Copper Cash Cost without Credits (Mo, Au, Ag) | ($/lb) | 1.72 | 1.96 |
Copper Cash Cost with Credits (Mo, Au, Ag) | ($/lb) | 1.49 | 1.74 |
All In Sustaining Cost (AISC) without Credits (Mo, Au, Ag) | ($/lb) | 1.78 | 2.03 |
All In Sustaining Cost (AISC) with Credits (Mo, Au, Ag) | ($/lb) | 1.56 | 1.81 |
Cash Costs – LOM | Pre-tax | Post-tax | |
Copper Cash Cost without Credits (Mo, Au, Ag) | ($/lb) | 1.72 | 1.96 |
Copper Cash Cost with Credits (Mo, Au, Ag) | ($/lb) | 1.49 | 1.74 |
All In Sustaining Cost (AISC) without Credits (Mo, Au, Ag) | ($/lb) | 1.79 | 2.04 |
All In Sustaining Cost (AISC) with Credits (Mo, Au, Ag) | ($/lb) | 1.57 | 1.81 |
Net Annual Cash Flow | Pre-tax | Post-tax | |
Year 1 to Year 5 | ($M) | 161.6 | 151.3 |
Year 1 to Year 21 | ($M) | 297.9 | 238.4 |
LOM | ($M) | 200.6 | 150.9 |
OTLLC has conceptually proposed a second lift (Lift 2) for the Hugo North/Hugo North Extension area, in conjunction with mining of the Hugo South and Shivee West
The 2018 Technical Report presents the mine plan and financial analysis for the mineral reserves (Entrée’s 2018 Reserve Case) and the 2018 PEA. Entrée’s 20% attributable interest in production is comprisedprovided for the mineral reserves and for the 2018 PEA. To meet Form43-101F1 requirements, the Oyu Tolgoi mine facilities that the mineral reserves and the 2018 PEA rely upon are summarized in the 2018 Technical Report, even though the majority of twothe facilities are located on the Oyu Tolgoi mining licences,licence that Entrée has no ownership interest in. However, Entrée does have access to these facilities for processing its share of production through the Entrée/Oyu Tolgoi JVA. The 2018 Technical Report does not discuss the mineral resources or mineral reserves on the Oyu Tolgoi mining licence, where Entrée does not have an attributable interest.
Project Area
The Entrée/Oyu Tolgoi JV Project is located in the South Gobi region of Mongolia, 570 km south of the capital city of Ulaanbaatar and 80 km north of the Mongolian border with China. The Project can be accessed by road and air. A railway route is under construction by the Government of Mongolia and will pass through the southwest corners of the Shivee Tolgoi and Javhlant whichmining licences. OTLLC will make use of the Port of Tianjin in China for freight.
The South Gobi region has a continental, semi-desert climate. Mining operations are heldconducted year-round. Exploration activities can see short curtailments during storm activity.
Mineral Tenure, Royalties and Agreements
Wood did not independently review ownership of the Project area and any underlying property agreements, mineral tenure, surface rights, or royalties. Wood fully relied upon information derived from Entrée and legal experts retained by a wholly owned subsidiary, Entrée LLC.
Mineral Tenure
The Shivee Tolgoi and Javhlant mining licences cover a total of about 62,920 ha and completely surround the Oyu Tolgoi mining licence. The Shivee Tolgoi and Javhlant mining licences are valid until 2039, assuming statutory payments and reporting obligations are met, and can be extended for two subsequent20-year terms. The Shivee Tolgoi and Javhlant mining licences are currently divided between Entrée and the Entrée/Oyu Tolgoi JV as follows (Figure 1 above):
Entrée/Oyu Tolgoi JV |
Shivee West |
Joint Venture Agreement
On October 15, 2004, Entrée entered into theEarn-In Agreement with Ivanhoe Mines Ltd. (now Turquoise Hill). On November 9, 2004, Turquoise Hill and Entrée entered into an Amendment to Equity Participation andEarn-In Agreement, which appended the form of joint venture agreement that the parties were required to enter into on the date upon which the aggregateearn-in expenditures incurred by Turquoise Hill equalled or exceeded the amount ofearn-in expenditures required in order for Turquoise Hill to earn the maximum participating interest available (80%). On March 1, 2005, Turquoise Hill and Entrée entered into an Assignment Agreement, pursuant to which Turquoise Hill assigned most of its rights and obligations under theEarn-In Agreement, as amended, to Ivanhoe Mines Mongolia Inc. (now OTLLC).
On June 30, 2008, OTLLC gave notice to Entrée that it had completed theearn-in expenditures required in order to earn the maximum participating interest available. As a consequence, a joint venture was formed. OTLLC has an initial joint venture participating interest of 80% in the Entrée/Oyu Tolgoi JV, and Entrée has an initial joint venture participating interest of 20%. In respect of products extracted from the Entrée/Oyu Tolgoi JV property pursuant to mining carried out at depths from surface to 560 m below surface, the OTLLC has an initial participating interest of 70% and Entrée has an initial participating interest of 30%.
On October 1, 2015, Entrée and Entrée LLC entered into a License Fees Agreement with OTLLC, pursuant to which the parties agreed to negotiate in good faith to amend the Entrée/Oyu Tolgoi JVA to include the Shivee West Property in the definition of the Entrée/Oyu Tolgoi JV Property. In addition, under the Entrée/Oyu Tolgoi JVA, OTLLC has a right of first refusal with respect to any proposed disposition by Entrée of an interest in the Shivee West Property.
Strategic Deposits
Under Resolution No 57 dated July 16, 2009 of the State Great Khural, the Oyu Tolgoi series of deposits were declared to be Strategic Deposits. The originalMinistry of Mining has advised Entrée that it considers the deposits on the Entrée/Oyu Tolgoi JV Property to be part of the series of Oyu Tolgoi deposits.
Investment Agreement
On October 6, 2009, Turquoise Hill, its wholly-owned subsidiary OTLLC, and Rio Tinto signed the Oyu Tolgoi Investment Agreement with the Mongolian Government, which regulates the relationship among the parties and stabilizes the long-term tax, legal, fiscal, regulatory and operating environment to support the development of the Oyu Tolgoi project. The Oyu Tolgoi Investment Agreement took legal effect on March 31, 2010.
The Oyu Tolgoi Investment Agreement specifies that the Government of Mongolia will own 34% of the shares of OTLLC (and indirectly by extension, 34% of OTLLC’s interest in the Entrée/Oyu Tolgoi JV Property) through its subsidiary Erdenes Oyu Tolgoi LLC. A shareholders’ agreement was concurrently executed to establish the Government’s 34% ownership interest in OTLLC and to govern the relationship among the parties.
Although the contract area defined in the Oyu Tolgoi Investment Agreement includes the Javhlant and Shivee Tolgoi exploration licences were converted to mining licences, by MRAM in October 2009 asEntrée is not a condition precedentparty to the Oyu Tolgoi Investment Agreement and does not have any direct rights or benefits under the Oyu Tolgoi Investment Agreement.
OTLLC agreed, under the terms of theEarn-In Agreement, to use its best efforts to cause Entrée to be brought within the ambit of, made subject to and to be entitled to the benefits of the Oyu Tolgoi Investment Agreement or a separate stability agreement on substantially similar terms to the Oyu Tolgoi Investment Agreement.
Royalties
The Minerals Law of deposits consistsMongolia provides for the payment of massive augite basalt, conglomerate, dacitic tuffs, and siltstones, which are overthrust bya royalty for exploitation of a mineral resource (the regular royalty). In general, the 'Heruga sequence', comprising basaltic flows, volcaniclastic rocks, and siltstones. Onlyregular royalty is calculated on the lower partsbasis of the Devonian sequence host porphyry mineralizationsales value of all extracted products sold or loaded to be sold, and associated alteration.of all products utilized. Depending on the type of mineral, the regular royalty ranges from a base rate of 2.5% to 5%. The Carboniferous Sainshandhudag Formation unconformably overliesapplicable regular royalty rate for copper, silver, molybdenum and exported gold is 5%. In addition, an additional royalty amount may be payable depending on the older rocks. Major Carboniferous or younger faults disruptmarket value in excess of a designated base value of the mineralized corridorrelevant product (the surtax royalty).
If the State is an equity participant in the exploitation of a Strategic Deposit, the licence holder is permitted to negotiate with the Government of Mongolia to exchange the Government’s equity interest in the licence holder for an additional royalty payable to the Government (a special royalty), the percentage of which would vary depending on the particulars of the Strategic Deposit, but which cannot exceed 5%. The special royalty would be paid in addition to the regular royalty and, bound the western side of most deposits.
Geology and Mineralization
The Hugo North Extension depositOyu Tolgoi deposits, including those within the Entrée/Oyu Tolgoi JV Property, containshost copper-gold porphyry and related high-sulphidation copper-gold deposit styles. Mineralization identified in the Shivee West Property consists oflow-sulphidation epithermal mineralization styles.
The Oyu Tolgoi porphyry deposits are hosted within the Palaeozoic Gurvansayhan Terrane. Lithologies identified to date in the Gurvansayhan Terrane include Silurian to Carboniferous terrigenous sedimentary, volcanic-rich sedimentary, carbonate, and intermediate to felsic volcanic rocks. The sedimentary and volcanic units are intruded by Devonian granitoids and Permo-Carboniferous diorite, monzodiorite, granite, granodiorite, and syenite bodies, which can range in size from dykes to batholiths.
The Hugo Dummett deposits (Hugo North/Hugo North Extension and Hugo South) contain porphyry-style mineralization associated with Qmdquartz monzodiorite intrusions, concealed beneath a deformed sequence of Upper Devonian and Lower Carboniferous sedimentary and volcanic rocks.
Host rocks at Hugo North/Hugo North Extension deposits consists of an easterly-dipping sequence of volcanic and volcaniclastic strata correlated with the lower part of the Devonian Alagbayan Group, and quartz monzodiorite intrusive, rocks that intrude the volcanic sequence, and a large post-mineral biotite granodiorite. The highest-grade copper mineralization in the Hugo North/Hugo North Extension deposits is related to a zone of intensely stockworked to sheeted quartz veins. The high-grade zone is centred on thin, east-dipping quartz monzodiorite intrusions or within the apex of the large quartz monzodiorite body, and extends into adjacent basalt. Bornite is dominant in the highest-grade parts of the deposit(3-5% copper) and is zoned outward to chalcopyrite (2% copper). At grades of <1% copper, pyrite-chalcopyrite dominates. Elevated gold grades in the Hugo North/Hugo North Extension deposits occur within theup-dip (western) portion of the intensely-veined, high-grade core, and within a steeply-dipping lower zone cutting through the western part of the quartz monzodiorite.
The Hugo North Extension occurs within moderately east dipping (65° to 75°) strata contained in a north-northeasterly-elongate fault-bounded block. The deposit is cut by several major brittlenortheast-striking faults and fault systems, partitioningsplays near the deposit into discrete structural blocks. Internally, these blocks appear relatively undeformed, and consist of south-east dipping volcanic and volcaniclastic sequences. The stratiform rocks are intruded by Qmd stocks and dykes that are probably broadly contemporaneousboundary with mineralization. The deposit is shallowest at the southern end (approximately 500 metres below surface) and plunges gently to the north.
The Heruga deposit is the most southerly of the currently known deposits within the Oyu Tolgoi Trend. The deposit is a copper-gold-molybdenum porphyry deposit and is zoned with a molybdenum-rich carapace at higher elevations overlying gold-rich mineralization at depth. The top of the mineralization starts500-600 m below the present ground surface. Quartz monzodiorite bodies intrude the Devonian augite basalts as elsewhere in October 2004,the district.Non-mineralized dykes, comprising about 15% of the volume of the deposit, cut all work onother rock types. The deposit is transected by a series of north-northeast-trending vertical fault structures that step down 200 m to 300 m at a time to the west and have divided the deposit into at least two structural blocks.
High-grade copper and gold intersections show a strong spatial association with contacts of the mineralized quartz monzodiorite porphyry intrusion in the southern part of the deposit. At deeper levels, mineralization consists of chalcopyrite and pyrite in veins and disseminated within biotite-chlorite-albite-actinolite-altered basalt or sericite-albite-altered quartz monzodiorite. The higher levels of the orebody are overprinted by strong quartz-sericite-tourmaline-pyrite alteration where mineralization consists of disseminated and vein-controlled pyrite, chalcopyrite and molybdenite.
A number of prospects have been identified in the Entrée/Oyu Tolgoi JV PropertyProject through reconnaissance evaluation, geochemical sampling and geophysical surveys. Some targets have preliminary drill testing. The Entrée/Oyu Tolgoi JV Project retains exploration potential for porphyry and epithermal-style mineralization.
History
Entrée’s interest in the Project commenced in 2002, when an option agreement was conducted by OTLLC,signed with a private Mongolian company over the operator,Shivee Tolgoi and included geophysics (predominantly IP), mappingJavhlant exploration licences. Entrée subsequently purchased the licences in 2003, and RC and diamond drilling.they were converted to mining licences in 2009. The majoritydetails of the diamondEntrée/Oyu Tolgoi JV are summarized above under “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Mineral Tenure, Royalties and Agreements – Joint Venture Agreement”.
Work completed in the Project area has included: surface reconnaissance mapping; geochemical sampling (trenching, conventional and mobile metal ion soil sampling, rock chip and grab sampling, and stream sediment and pan concentrate sampling); geophysical surveys (IP, regional magnetic, ground magnetometer, and high-resolution magnetotelluric surveys); interpretation of satellite imagery; RC, polycrystalline (“PCD”), and core drilling; metallurgical testwork; mining, geotechnical, and hydrogeological studies; and social and environmental studies.
Drilling and Sampling
Approximately 250,000 m of drilling in approximately 250 holes has been exploration relatedcompleted within the Shivee Tolgoi and Javhlant mining licences between 2004 and the effective date of the 2018 Technical Report. Core drill holes are the principal source of geological and grade data. A small percentage of the drilling total comes from RC or combined RC/core drilling and from PCD drilling.
Core drilling includes 11871 drill holes totalling 95,748 metres97,252 m on the Hugo North Extension deposit and 4546 drill holes totalling 56,957 metres67,844 m on the Heruga deposit.
There has been undertaken by OTLLCno drilling within the Shivee West Property since 2011. There has been no drilling on the Entrée/Oyu Tolgoi JV Property since February 2013.
Entrée/Oyu Tolgoi JV Property – Sampling, AnalysisDrilling
Most holes at Hugo North and Security
RC drill holes were typically not down-hole surveyed. In general, most RC holes are less than 100 m in depth and therefore unlikely to experience excessive deviations in the drill trace. OTLLC uses down-hole survey instruments to collect the azimuth and inclination at specific depths of the core drill holes for most of the diamond drilling programs. Six principal types of survey method have been used over the duration of the drilling programs, onincluding Eastman Kodak, Flexit, Ranger, gyro, and north-seeking gyro methods.
Recovery data were not collected for the RC drill programs. OTLLC’s geology staff measure core recovery and rock quality designation (“RQD”) during core drilling programs. In general, OTLLC reports that core recoveries obtained by the various drilling contractors have been very good, averaging between 97% and 99% for all of the deposits. RQD was not recorded for Heruga core, nor was geotechnical logging undertaken.
The logging comprised capture of geological, alteration, and mineralization data. In August 2010, OTLLC implemented a digital logging data capture using the acQuire system, replacing the earlier paper logging.
Density data have been collected using water immersion methods, with a calliper method used as a quality assurance/quality control check.
Entrée/Oyu Tolgoi JV Property Sampling
Drill core was halved using a saw and sampled on 2 m intervals.
Independent analytical laboratories used during the analytical programs have included soil, rock chip,SGS, ALS (primary laboratories) and Bondar Clegg, Chemex, Genalysis, and Actlabs (secondary laboratories). ALS and SGS currently act as the secondary laboratories for each other. Theon-site sample preparation facility has been managed by SGS and its predecessor companies since 2002.
Sample preparation protocols were in line with industry norms, consisting of crushing to a nominal 90% at 3.35 mm, and pulverizing to a nominal 90% at 75 µm (200 mesh).
Until September 2011, all samples submitted to SGS (Mongolia) were routinely assayed for gold, copper, iron, molybdenum, arsenic and silver. Copper, molybdenum, silver, and arsenic were determined by acid digestion followed by an atomic absorption spectroscopy (“AAS”) finish. Gold was determined using a 30 g fire assay fusion. After 2011, fluorine assays were requested. ALS (Vancouver) was appointed the primary laboratory for the high-resolution multi-element inductively-coupled plasma-mass spectroscopy(ICP-MS) suite, and LECO sulphur and carbon analyses. A trace element composites (“TEC”) program was undertaken in addition to routine analyses. The composites were subject to multi-element analyses comprising a suite of 47 elements determined by inductively-coupled plasma optical emission spectroscopy/mass spectrometry(“ICP-OES/MS”). Additional element analyses included mercury by cold vapour AAS, fluorine by KOH fusion/specific ion electrode, and carbon/sulphur by LECO furnace.
All programs since 2003 have included submission of QA/QC samples, consisting of blank samples, standard reference materials (“SRMs”), duplicate samples, and check samples. For most of the drill programs, OTLLC has maintained a check assay program sending approximately 5% of assayed pulps to secondary laboratories.
Samples were always attended or locked in a sample dispatch facility. Sample collection and transportation have always been undertaken by company or laboratory personnel using company vehicles.Chain-of-custody procedures consisted of filling out sample submittal forms that were sent to the laboratory with sample shipments to make certain that all samples were received by the laboratory.
Shivee West Property Drilling
Core holes were either completely drilled at PQ or HQ sizes, although some holes were PQ reduced to HQ, and others PQ reduced to HQ to NQ.
Drill hole collars were surveyed at the end of each field season by Geocad Co. Ltd., a surveying company based in Ulaanbaatar, using differential GPS equipment. Entrée downhole-surveyed all core holes at approximately 50 m intervals using a Sperry Sun instrument. No downhole surveys were undertaken for RC holes. Most RC holes are shallow and vertical, and unlikely to have significant deviation. Core recoveries obtained by the drilling contractor were very good, except in localized areas of faulting or fracturing.
Core was logged for lithology, mineralization and alteration, and geological structures.
Shivee West Property Sampling
The 2011 RC holes were sampled on 1 m intervals from collar to planned depth.
Drill core was halved using a saw and sampled on 2 m intervals.
Independent analytical laboratories used during the analytical programs included SGS for the core drilling, and Actlabs for RC samples.
Sample preparation of drill core consisted of crushing to 85% passing 3.35 mm, followed by pulverizing to 90% passing 75mm. Gold analysis was undertaken using a 30 g fire assay method. Copper, silver, and molybdenum were determined by AA.
RC techniques. All ofsamples were pulverized to at least 95% passing 75 µm. Gold and silver analyses were undertaken using a 30 g fire assay method.
Field blank, commercial SRMs, and quarter-core duplicate samples (for RC programs, field duplicates) were included in the sampling onsample submissions.
Unsampled core was never left unattended at the Entrée/Oyu Tolgoi JV Property is carried out by OTLLC personnelrig; boxes are transported to the core logging facility at the camp site twice daily under a geologist or contractors, except for early-stage samplinggeologist-technician’s supervision. Sampled core was immediately sealed and stored in a fenced facility at the camp site. Samples were delivered under lock and key by Entrée priorpersonnel directly to the Earn-in Agreement being signedlaboratory in October 2004. AllUlaanbaatar on an approximate weekly basis and using achain-of-custody form to record transport and receipt of samples.
Data Verification
OTLLC and its predecessor Ivanhoe Mines reviewed assay quality control sample results supporting drill hole sample assaying on a monthly basis and prepared monthly and quarterly QA/QC reports. These reports describe a systematic monitoring and response to identified issues. In 2011 Ivanhoe Mines reported on an internal review, including laboratory audits, quality assurance procedures, quality control monitoring, and database improvements at Oyu Tolgoi for the early-stage sampling methodsperiod 2008 to 2010. Recommendations from this review were implemented or under advisement. No material issues were identified in these reports.
A number of data reviews have been supersededundertaken by independent consultants as part of preparation of technical reports on the Project.
Wood reviewed drilling, which formssampling, and QA/QC procedures, and inspected drill core, core photos, core logs, and QA/QC reports during 2011 site visits. During this period, Wood also led the basispreparation of updated geological models related to the currentOyut and Hugo North deposits, including the Hugo North Extension.
The data verification completed by OTLLC and its predecessor companies, and the independent data verification completed by others, including Wood, are sufficient to conclude the drill hole database is reasonably free of errors and suitable to support mineral resource estimates.
Metallurgical Testwork
Detailed metallurgical testwork has been demonstrated to be around 600 samples per day when fully staffed.
The first phase of the development of the Oyu Tolgoi licence boundary,mine process facilities was completed with concentrator commissioning in 2013. Testwork results and operations data have been used to develop and update the throughput models and metallurgical predictions, as well as to guide designs for the second development phase. The second phase will include a concentrator conversion, consisting of additional equipment required to process the changing semi-autogenous grind (“SAG”):ball mill power ratio and higher-grade Hugo North/Hugo North Extension ore.
Throughput algorithms were developed during comminution modelling. The volumetric capacity limit in base data template 31 (“BDT31”) that was used in OTLLC’s 2014 Oyu Tolgoi Feasibility Study was 5.5 kt/h (121 kt/d, 44.3 Mt/a). After a review of the volumetric capacity in OTLLC’s 2016 Oyu Tolgoi Feasibility Study, this was reduced to 5.0 kt/h (110 kt/d, 40 Mt/a). As a result, for the preparation of the 2016 Oyu Tolgoi Feasibility Study production schedule for the Oyu Tolgoi operation, the plant throughput volumetric limit was changed from 5.5 kt/h to 5.0 kt/h and the instantaneous throughput was increased by 2.2%. Further elevation and revision of the limit is quite likely asde-bottlenecking and optimization of the plant continues. The 2016 Oyu Tolgoi Feasibility Study limit has already been reached and may be exceeded as the Oyut ore is treated. For Heruga, throughput is not modeled, but instead is limited to 33.25 Mt/a.
Hugo North/Hugo North Extension recoveries for copper, gold, and silver are based on drilling completedBDT31, and derived equations. For Heruga, copper recoveries are based on the KM2133 testwork results with recoveries ranging up to February 14, 201486.5% copper and producing concentrate grades of 25% by weight copper. The gold and silver recoveries are based on the Hugo North/Hugo North Extension projections.
Copper assays vary with higher-grade Hugo North/Hugo North Extension production and increased bornite content early in the block cave. The peak grades from underground bornite-bearing ores are moderated by simultaneous treatment of large amounts of Oyut ore in 2022-2026. The high copper content, especially with a high copper:sulphur ratio, is attractive to most smelters as it provides high copper yield while not taxing acid recovery and handling systems. The peak anticipated concentrate grades of30%-35% copper are projected from 2022 through 2030. The average grades presented in the 2016 Oyu Tolgoi Feasibility Study after concentrator conversion are expected to be competitive with other imports to the Chinese market at 28% copper. The significant variability in precious metals content may require shifts in concentrate allocations to smelters.
Arsenic and fluorine are the only penalty elements that have been identified in the Oyut, Hugo North/Hugo North Extension deposits. Enargite is the primary arsenic carrier in these deposits, although tennantite is locally important. For arsenic in copper concentrate, the production model assigns a rate of $2/t/1,000 ppm above a 3,000 ppm threshold up to the rejection level of 5,000 ppm. For fluorine, the production model assigns a rate of $2/t/100 ppm above a 300 ppm threshold up to the rejection level of 1,000 ppm. The penalties are in line with terms from custom smelters. It has been reported with an effective date of March 28, 2014. The effective datethat no fluorine penalties have been applied under the contract terms in operation since sales commenced in late 2013, so some conservatism is inherent in the NSR estimates.
Bismuth and fluorine were present at penalty levels for testwork concentrates generated for the Heruga mineral resource is March 30, 2010 and is based on drilling to June 21, 2009.mineralization.
Mineral Resource Estimation
The database used for the major structures and lithological units based on the structural and geological information outlined in LHTR16. For each deposit, appropriate copper and gold shells at various cut-off grades were also defined. These shapes were then edited on plan and section views to be consistent with the structural and lithological models and the drill assay data. Checks on the structural, lithological, and grade shell models indicated that the shapes honoured the drillhole data and interpreted geology.
Deposit | Tonnage (Mt) | Copper (%) | Gold (g/t) | Silver (g/t) | Molybdenum (ppm) | CuEq (%) | ||||
Hugo North Extension Deposit | ||||||||||
Measured | 1.2 | 1.38 | 0.12 | 2.77 | 38.4 | 1.47 | ||||
Indicated | 128 | 1.65 | 0.55 | 4.12 | 33.6 | 1.99 | ||||
Inferred | 179 | 0.99 | 0.34 | 2.68 | 25.4 | 1.20 | ||||
Heruga Deposit | ||||||||||
Inferred | 1,700 | 0.39 | 0.37 | 1.39 | 113.2 | 0.64 | ||||
Deposit | Contained Metal | |||||||||
Copper (Mlb) | Gold (koz) | Silver (koz) | Molybdenum (Mlb) | CuEq (Mlb) | ||||||
Hugo North Extension Deposit | ||||||||||
Measured | 36 | 4.4 | 105 | 0.1 | 38 | |||||
Indicated | 4,663 | 2,271 | 16,988 | 9.5 | 5,633 | |||||
Inferred | 3,887 | 1,963 | 15,418 | 10.0 | 4,730 | |||||
Heruga Deposit | ||||||||||
Inferred | 14,610 | 20,428 | 75,955 | 424 | 24,061 |
OTLLC produced 3D geological domains. The effective date for the Heruga mineral resource is March 30, 2010. OreWin has reviewed the Heruga resource estimate and is of the opinion that the original data is still reliable and current and there have been no material changes resulting from drilling completed after May 2009.
Drill hole assay composites of 5 m lengths were used for both Hugo North/Hugo North Extension and Heruga. Bulk density values were composited into 5 m fixed-length downhole values for Heruga. A straight composite was used for Hugo North/Hugo North Extension.
A strategy of soft, firm, and hard (“SFH”) boundaries was implemented to account for domain boundary uncertainty (dilution) and to reproduce the input grade sample distribution in the estimation of gradesblock model. Variographic analysis was completed. Both copper and gold in the model, OTLLC also manually created 3D grade shells (wireframes)Hugo North/Hugo North Extension area displayed short ranges for each of the metalsfirst variogram structure and moderate to long ranges for the second variogram structure (where modelled). The nugget variance tended to be estimated. Construction oflow to moderate in all the grade shells took into account prominent lithological and structural features, in particular the four major sub-vertical post-mineralization faults. Fordomains assessed. At Heruga, copper, a single grade shell at a threshold of 0.3% copper was used. For gold, wireframes were constructed at thresholds of 0.3 g/t gold, and 0.7 g/t gold. For molybdenum a single grade shell at a thresholdshowed relatively short first variogram structures and long second variogram structures of 100 ppm250-300 m. Copper and gold showed relatively low nuggets, whereas molybdenum was constructed. Silver was estimated using the copper domains. These grade shells took into account known gross geological controls in additionmoderate to broadly adhering to the above mentioned thresholds.
The block caving method envisioned for the Hugo North/Hugo North Extension area does not allow for consideration of selectivity. Asub-celled model with parent block dimensions equal to 15 m x 15 m x 15 m and minimumsub-block dimensions down to 5 m x 5 m x 5 m was used for resource estimate. Interpolation domainsestimation. The actualsub-block sizes in the Hugo North/Hugo North Extension model vary as necessary to fit the specified boundaries of the wireframes used to tag the block model. The block models were based on mineralized geology,coded according to zone, lithological domain, and grade shell. For Hugo North/Hugo North Extension,sub-celling was used to honour lithology, grade, and structural contacts. Blocks above topography were removed from the block model.Non-mineralized units were flagged using a lithology code and were excluded during the interpolation process. Blocks in the Hugo North/Hugo North Extension model were assigned an estimation based ondomain using a combination of grade shells or alteration and lithology.
Modelling of Hugo North/Hugo North Extension consisted of grade interpolation by ordinary kriging. Bulkkriging (“OK”), except for bulk density, which was interpolated using ana combination of simple kriging and inverse distance weighting to the second power (“ID2”). Restricted and unrestricted grades were interpolated to allow calculation of the metal removed by outlier restriction. Grades were also interpolated using nearest-neighbour (“NN”) methods for validation purposes. Blocks and composites were matched on estimation domain. Three estimation passes were used.
The Heruga block model was coded according to zone, lithological domain, and grade shell. Modelling consisted of grade interpolation by OK. As part of the model validation, grades were also interpolated using NN, inverse distance weighting to the third power methodology. The assays(“ID3”), and OK of uncapped composites. Density was interpolated by ID3. Three estimation passes were composited into 5.0 metre downhole composites;used.
Measured, Indicated, and Inferred confidence classifications were assigned to blocks at Hugo North/Hugo North Extension using a combination of a preliminary block sizesclassification using a script based on distance to a drill hole and number of drill holes used to estimate a block, generation of probability model for the three confidence categories, and manual cleaning using polygons generated in sectional view.
There are no Measured or Indicated mineral resources at Heruga. Interpolated cells were 20 metres x 20 metres x 15 metres. Blocksclassified as Inferred mineral resources if they fell within 150 metresm of a drillholedrill hole composite. All mineralization at Heruga is currently classified as Inferred mineral resources.
Once the underground 3D constraining shapes were initially considered to be Inferred. A 3D wireframegenerated, mineral resources were stated for those model cells within the constraining underground stope-block shapes that met a given copper equivalentcut-off grade. The optimized block cave shape used for the considerations of reasonable prospects for eventual economic extraction was constructed, insidecreated in 2012, using assumptions contained in base data template 29 (“BDT29”), comprising metal prices of which the nominal drill spacing was less than 150 metres.
Cut-off grades were determined using BDT31 assumptions. The base formulaNSR per tonne of mill feed material was required to be equal to or exceed the production cost of a tonne of mill feed for an operation to break even or make money. For the underground mine, the break-evencut-off grade needs to cover the costs of mining, processing, and general and administrative (“G&A”). A NSR of $15.34/t would be required to cover costs of $8.00/t for mining, $5.53/t for processing and $1.81/t for G&A. This translates to a CuEq break-even undergroundcut-off grade of approximately 0.37% CuEq for Hugo North Extension is:
Mineral Resource Statement
Mineral resources are reported using the 2014 CIM Definition Standards for Hugo North Extension in Table 3 below and for Heruga is:
Areas of uncertainty that could materially affect the mineral resource estimates include the following: commodity pricing; interpretations of fault geometries; effect of alteration as a control on mineralization; lithological interpretations on a local scale, including dyke modelling and discrimination of different quartz monzodiorite phases; geotechnical assumptions related to the proposed block cave design and material behaviour; metal recovery assumptions; additional dilution considerations that may be introduced by a block cave mining method; assumptions as to operating costs used when assessing reasonable prospects of eventual economic extraction; and changes to drill spacing assumptions and/or the number of drill hole composites used to support confidence classification categories.
Table 3 – Mineral Resource Summary Table, Hugo North Extension
Classification | CuEq Cut- Off (%) | Tonnage (Mt) | Grade Cu (%) | Grade Au (g/t) | Grade Ag (g/t) | Grade CuEq (%) | ||||||
| ||||||||||||
| ||||||||||||
Indicated | 0.37 | 122 | 1.68 | 0.57 | 4.21 | 2.03 | ||||||
Inferred | 0.37 | 174 | 1.00 | 0.35 | 2.73 | 1.21 |
Classification | CuEq Cut- Off (%) | Tonnage (Mt) | Contained Cu (Mlb) | Contained Au (koz) | Contained Ag (koz) | |||||
| ||||||||||
| ||||||||||
Indicated | 0.37 | 122 | 4,515 | 2,200 | 16,500 | |||||
Inferred | 0.37 | 174 | 3,828 | 2,000 | 15,200 |
Notes to accompany Hugo North Extension mineral resource table:
1. | Mineral resources have an effective date of January 15, 2018. |
2. | Mineral resources are reported inclusive of the mineral resources converted to mineral reserves. Mineral resources that are not mineral reserves do not have demonstrated economic viability. |
3. | Mineral resources are constrained within three-dimensional shapes and above a CuEq grade. The CuEq formula was developed in 2016, and is CuEq16 = Cu + ((Au*AuRev) + (Ag*AgRev) + (Mo*MoRev)) ÷ CuRev; where CuRev = (3.01*22.0462); AuRev = (1250/31.103477*RecAu); AgRev = (20.37/31.103477*RecAg); MoRev = (11.90*0.00220462*RecMo); RecAu = Au recovery/Cu recovery; RecAg = Ag recovery/Cu recovery; RecMo = Mo recovery/Cu recovery. Differential metallurgical recoveries were taken into account when calculating the copper equivalency formula. The metallurgical recovery relationships are complex and relate both to grade and copper:sulphur ratios. The assumed metal prices are $3.01/lb for copper, $1,250.00/oz for gold, $20.37/oz for silver, and $11.90/lb for molybdenum. Molybdenum grades are only considered high enough to support potential construction of a molybdenum recovery circuit at Heruga, and hence the recoveries of molybdenum are zeroed out for Hugo North Extension. A NSR of $15.34/t would be required to cover costs of $8.00/t for mining, $5.53/t for processing and $1.81/t for G&A. This translates to a CuEq break-even undergroundcut-off grade of approximately 0.37% CuEq for Hugo North Extension mineralization. |
4. | Considerations for reasonable prospects for eventual economic extraction included an underground resource-constraining shape that was prepared on vertical sections using economic criteria that would pay for primary and secondary development, block-cave mining, ventilation, tramming, hoisting, processing, and G&A costs. A primary and secondary development cost of $8.00/t and a mining, process, and G&A cost of $12.45/t were used to delineate the constraining shapecut-off. |
5. | Mineral resources are stated as in situ with no consideration for planned or unplanned external mining dilution. The contained copper, gold, and silver estimates in the mineral resource table have not been adjusted for metallurgical recoveries. |
6. | Mineral resources are reported on a 100% basis. OTLLC has a participating interest of 80%, and Entrée has a participating interest of 20%. Notwithstanding the foregoing, in respect of products extracted from the Entrée/Oyu Tolgoi JV Property pursuant to mining carried out at depths from surface to 560 m below surface, the participating interest of OTLLC is 70% and the participating interest of Entrée is 30%. |
7. | Figures have been rounded as required by reporting guidelines and may result in apparent summation differences. |
Table 4 – Mineral Resource Summary Table, Heruga
Inferred Classification | CuEq Cut- Off (%) | Tonnage (Mt) | Cu Grade (%) | Au Grade (g/t) | Ag Grade (g/t) | Mo Grade (g/t) | CuEq Grade (%) | |||||||
| ||||||||||||||
| ||||||||||||||
Heruga within the Entrée/Oyu Tolgoi JV Property | 0.37 | 1,700 | 0.39 | 0.37 | 1.39 | 113.2 | 0.64 | |||||||
|
Inferred Classification | CuEq Cut- Off (%) | Tonnage (Mt) | Contained Cu (Mlb) | Contained Au (koz) | Contained Ag (koz) | Contained Mo (Mlbs) | ||||||
| ||||||||||||
| ||||||||||||
Heruga within the Entrée/Oyu Tolgoi JV Property | 0.37 | 1,700 | 14,604 | 20,410 | 75,932 | 424 | ||||||
|
Notes to accompany Heruga mineral resource table:
1. | Mineral resources have an effective date of January 15, 2018. |
2. | Mineral resources are constrained within three-dimensional shapes and above a CuEq grade. The CuEq formula was developed in 2016, and is CuEq16 = Cu + ((Au*AuRev) + (Ag*AgRev) + (Mo*MoRev)) ÷ CuRev; where CuRev = (3.01*22.0462); AuRev = (1250/31.103477*RecAu); AgRev = (20.37/31.103477*RecAg); MoRev = (11.90*0.00220462*RecMo); RecAu = Au recovery/Cu recovery; RecAg = Ag recovery/Cu recovery; RecMo = Mo recovery/Cu recovery. Differential metallurgical recoveries were taken into account when calculating the copper equivalency formula. The metallurgical recovery relationships are complex and relate both to grade and copper:sulphur ratios. The assumed metal prices are $3.01/lb for copper, $1,250.00/oz for gold, $20.37/oz for silver and $11.90/lb for molybdenum. A NSR of $15.34/t would be required to cover costs of $8.00/t for mining, $5.53/t for processing and $1.81/t for G&A. This translates to a CuEq break-even undergroundcut-off grade of approximately 0.37% CuEq for Heruga mineralization. |
3. | Mineral resources are stated as in situ with no consideration for planned or unplanned external mining dilution. The contained copper, gold, silver, and molybdenum estimates in the mineral resource table have not been adjusted for metallurgical recoveries. |
4. | Mineral resources are reported on a 100% basis. OTLLC has a participating interest of 80%, and Entrée has a participating interest of 20%. Notwithstanding the foregoing, in respect of products extracted from the Entrée/Oyu Tolgoi JV Property pursuant to mining carried out at depths from surface to 560 m below surface, the participating interest of OTLLC is 70% and the participating interest of Entrée is 30%. |
5. | Figures have been rounded as required by reporting guidelines and may result in apparent summation differences. |
Mineral Reserve Case reported by Entrée withEstimation
The mineral reserve for the mine plan reported in 2014 OTTR.
Classification | Ore (Mt) | NSR ($/t) | Cu (%) | Au (g/t) | Ag (g/t) | Cu (Mlb) | Au (koz) | Ag (koz) |
Probable | 35 | 100.57 | 1.59 | 0.55 | 3.72 | 1,121 | 519 | 3,591 |
Total Entrée/Oyu Tolgoi JV | 35 | 100.57 | 1.59 | 0.55 | 3.72 | 1,121 | 519 | 3,591 |
The mineral reserve estimate is based on what is deemed minable when considering factors such as the footprintNotescut-off:
Metal prices used for calculating the Hugo North/Hugo North Extension underground NSR are |
The NSR has been calculated with assumptions |
A footprintcut-off of $46.00/t NSR |
Mineral Reserve Statement
Mineral reserves for Hugo North Extension Lift 1 were estimated by OTLLC personnel during 2014, reviewed by OTLLC as part of the 2016 Oyu Tolgoi Feasibility Study, and summarized in the 2016 OTLLC Competent Person’s Annual Report (OTLLC, 2016g).
Wood has reviewed the estimate and notes that there has been no depletion or additional drilling or engineering that would affect the mineral reserve estimate for the Hugo North Extension Lift 1, and therefore the effective date of the mineral reserve estimate is the date of finalization of Wood’s review, which is January 15, 2018.
The mineral reserves for Hugo North Extension Lift 1 are summarized in Table 5 below.
Factors that may affect the mineral reserve estimates include commodity market conditions and pricing; unknowns with respect to the overall interpretation of the Hugo North/Hugo North Extension geology, including faulting and lithology; assumptions related to the design and geotechnical behaviour of the cave mining system, including, but not limited to, the flow of material (ore and dilution) relative to the upward progression and lateral advance of the cave and assumptions of the long-term performance of the mine infrastructure (both support and production); and assumptions related to the metal recovery in the mill and downstream processing, including, but not limited to, metal recovery, mill throughput, contaminant elements (particularly arsenic and fluorine).
Table 5 – Mineral Reserves Statement, Hugo North Extension Lift 1
Classification | Tonnage (Mt) | Cu (%) | Au (g/t) | Ag (g/t) | ||||||||||||
Probable | 35 | 1.59 | 0.55 | 3.72 | ||||||||||||
Total Entrée/Oyu Tolgoi JV Property | 35 | 1.59 | 0.55 | 3.72 |
Notes to accompany mineral reserves table:
Mineral reserves were estimated by OTLLC personnel and reviewed by Wood and have an effective date of January 15, 2018. |
2. | For the underground block cave, all mineral resources within the |
3. | A footprintcut-off NSR of $46.00/t and column heightshut-off NSR of $17.00/t were used define the footprint and column heights. An average dilution entry point of 60% of the column height was used. The NSR calculation assumed metal prices of $3.01/lb copper, $1,250.00/oz gold, and $20.37/oz silver. The NSR was calculated with assumptions for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries, and royalties using base data template 31. Metallurgical assumptions in the NSR include recoveries of 90.6% for copper, 82.3% for gold, and 87.3% for silver. |
4. | Mineral resources |
5. | Figures have been |
Mining Methods
The weak, massive nature of the Hugo North and North/Hugo North Extension depositsdeposit and theirthe location between 700 metresm and 1,400 metresm below surface make themit well suited, both geotechnically and economically, to the large-scale caving method of underground mining.cave mining methods. Caving requires amethods require large, early capital investment but isare generally highly productive and haswith relatively low operating costs. The mining areas included in the Reserve Case are shown schematically in Figure 7.
Hugo North/Hugo North Extension Lift 1, which has high copper and gold grades, will be mined as three panels. A panel is a defined contiguous portion of the overall cave dimensions are summarised in Table 17.
Production will ramp up to an average of 95,000 t/d of ore to the mill during the planned peak production period for the combined Hugo North/Hugo North Extension) Cave Dimensions
Cave | Extraction Level | Length (m) | Width (m) | Height (m) | |
Above Sea Level (m) | Below Surface (m) | ||||
Lift 1 | -100 | 1,270 | 2,000 | 280 | 600 |
The majority of the mine infrastructure required to support the successful extraction of the mineral reserves within the Entrée 2016.
To support overall mining of Hugo North/Hugo North Extension Lift 1, five shafts, approximately 203 km of lateral development, 6.8 km of vertical raising (raisebore and drop-raise) and 137,000 m3 of mass excavations will be undertaken. The Lift 1 levels are approximately 1,300 m below surface. Of the 2,231 drawpoints planned for Hugo North/Hugo North Extension Lift 1 and accessed from 52 extraction drifts, 238 drawpoints are located within the Hugo North Extension area. For Hugo North Extension portion of Lift 1, approximately 15.4 km of lateral development and approximately 781 m of vertical raising will be required.
From the geotechnical perspective, Hugo North/Hugo North Extension is considered highly suitable for cave mining methods, and the risks associated with caveability and propagation are considered to be low. Fine fragmentation is expected with all geotechnical domains, thus secondary breakage requirements are not expected to pose a risk to the production scheduleramp-up or full production rates. The Hugo North Extension portion of Lift 1 is anticipated to have a higher proportion of ‘Good’ ground conditions relative to Hugo North/Hugo North Extension Lift 1 as a whole. The costing of the underground has used a 60% Good ground and 40% Poor ground assumption as a more conservative estimate of ground control costs. The mine shafts and permanent infrastructure are all planned to be located outside of, or under, the predicted facture limits and “subsidence cone”.
The mining layout will include:
● | Apex and undercut levels to provide access drifts for production drills, blasting and mucking for the purpose of undercutting the ore deposit on the associated lift. The undercut drifts are planned to be spaced on 28 m intervals, situated 17 m above andhalf-way between the extraction drifts. The apex drifts will be situated 34 m above the extraction drifts at the top of the major apex pillars. |
● | Extraction drifts and drawbells for efficient load-haul-dump (“LHD”) operation to draw ore from the associated drawpoints, using an El Teniente-style (straight-through) drawbell layout on a 15 m spacing. The extraction drifts are planned to be spaced 28 m apart, on centre. The overall drawbell spacing layout is 28 m x 15 m. Within the drawbells, a drawcone centroid spacing of 10 m is used to promote interactive draw from the cave. |
● | Haulage levels to collect development and production ore material from the extraction and undercut levels, and transport it, using road trains, to crushers for size reduction. The haulage level will be located 44 m below the extraction level. |
● | Intake ventilation system to provide fresh air to the mining footprint levels, main travel ways, mine working areas and to underground fixed facilities. Fresh air to the footprint levels is planned to be supplied through two sets of twin intake tunnels to the extraction fringe (perimeter) drifts. |
● | Exhaust ventilation system to remove vitiated air from the mine. Exhaust drifts in the exhaust level will run the length of the deposit along the centre of the deposit axis. |
Road trains will haul from the loading chutes to the primary crushers on the west side of the mining footprint. Crushed material will be transferred by a series of conveyors directly to the surface or to the Shaft 2 hoisting system. Shaft 2 is intended to serve as the initial material handling route to surface until theconveyor-to-surface is commissioned.
Overall vertical development will include shaft development, ore/waste passes and ventilation raises. With the exception of the shafts, vertical development is planned to use several methods, including raise bore, boxhole, and drop-raise.
The underground mine requires a number of surface facilities to support the underground operations. At Hugo North/Hugo North Extension Lift 1 these include: Shaft 1 area, production shaft farm, Shaft 4 area, andconveyor-to-surface portal area. For the purposes of the 2018 Technical Report, Shaft 4 was anticipated to be sunk on the Entrée/Oyu Tolgoi JV Property, to a depth below surface of 1,149 m. To reach the Hugo North Lift 1 exhaust gallery, approximately 1,020 m of lateral development will be required on the Entrée/Oyu Tolgoi JV Property. A batch plant may also be constructed within the property area.
The latest work has focused on verifying assumptions made during design with actual operation experience gainedunderground mobile equipment fleet is classified into seven broad categories, including: mucking (LHDs); haulage (road trains and articulated haul trucks); drilling (jumbos, production drills and bolting equipment); raise bore and boxhole; utilities and underground support (flatbeds, boom trucks, fuel and lube trucks, explosive carriers, shotcrete transmixers and sprayers, etc.); surface support; and light vehicles (personnel transports, “jeeps”, tractors, etc.).
Major fixed equipment will include: material handling (crushing and conveying); fans and ventilation equipment; pumping and water handling equipment; power distribution equipment; data and communications equipment; and maintenance equipment (fixed shop furnishing).
The overall processing schedule was balanced to meet the available mill hours. The forecast production schedule for Hugo North Extension Lift 1 is included in Figure 3.
Figure 3 – Hugo North Extension Lift 1 – Underground Material Movement and Average Grade
Note: | Figure prepared by Wood, 2017. Hugo North EJV refers to Hugo North Extension Lift 1 within the Entrée/Oyu Tolgoi JV Property. Year 6 = 2021. |
Recovery Methods
Entrée’s share of products will, unless Entrée otherwise agrees, be processed at the OTLLC facilities by paying milling and smelting charges. The OTLLC facilities are not intended to be profit centres and therefore, minerals from the startEntrée/Oyu Tolgoi JV Property will be processed at cost. OTLLC will also make the OTLLC facilities available to Entrée at the same terms if spare processing capacity exists to process other suitable mill feed.
The Phase 1 concentrator was commissioned in early 2013. The nameplate processing capacity of commissioning the concentrator. In addition, further flotation variability tests have been conducted on Hugo North, Central zone, and blends of Southwest zone and Hugo North mineralization.
Phase 1 uses two grinding lines (Lines 1 and 2), each consisting of a SAG mill, two parallel ball mills, and associated downstream equipment to treat up to 100 ktpdkt/d of ore from the Oyut open pit. Operating data have been used in Phase 2 design, which addresses the delivery of Hugo North/Hugo North Extension underground plant feed fromvia Lift 1 in conjunction with open pit mining.
The intent of Phase 2 is to treat all the SOT Southwest Zone pit.
Reagents and media required will include lime, primary collector, secondary collector, frother, tailings flocculant, water treatment chemicals, and grinding media. With the addition of the concentrator conversion loads, the peak operating load demand from the existing 220 kV concentrator substation will increase by an estimated 20 MW (from116-136 MW), and the nominal operating (diversified) load will increase by an estimated 19 MW (from106-125 MW). The concentrator raw water demand varies seasonally. Annual average raw water demand is immediately northprojected to be 0.45 m3/t ore processed.
Project Infrastructure
Infrastructure required for Phase 1 of the Oyu Tolgoi mining licence.
Additional infrastructure that will be required to be purchased fromsupport Phase 2, or modifications to the Phase 1 infrastructure, includes: construction of conveyor decline and shafts; construction of permanent underground facilities including crushing and materials handling, workshops, services, and related infrastructure; concentrator conversion; modifications to the electrical shaft farm substation, and upgrades to some of the distribution systems; expanded logistical and accommodations infrastructure; underground maintenance and fuel storage facilities; expanded water supply and distribution infrastructure; and expanded tailings storage (“TSF”) capacity.
OTLLC has a Mongolian supplier. Onpower purchase agreement with the Inner Mongolia Power Corporation to supply power to the Oyu Tolgoi project. The term of this agreement covers the commissioning of the business, plus the initial four years of commercial operations. In August 14, 2014, Turquoise Hill announced that OTLLC had signed a Power Sector Cooperation Agreementthe PSCA with the Government of Mongolia which provides for an open, international tender processthe exploration of a Tavan Tolgoi-based independent power provider. Participation in the PSCA met OTLLC’s obligation in the Oyu Tolgoi Investment Agreement to identify and selectestablish a long-term power supply within Mongolia four years from the commencement of commercial production. Signing of the PSCA reset the four years obligation while the opportunity for the establishment of an independent power provider to privately fund, construct, own and operate a power plant to supply electricity, with the Oyu Tolgoi project (including the Entrée/Oyu Tolgoi JV Property) as the primary customer.
Environmental, StudiesPermitting and Social Impact Assessment
Environmental Considerations
OTLLC has completed a comprehensive Environmental and Social Impact Assessment ("ESIA"(“ESIA”) for the Oyu Tolgoi project, including the Entrée/Oyu Tolgoi JV Property. The ESIA undertaken as partis a summary of several research programs and reports, including the project finance process was publically disclosed in August 2012following baseline studies: climate and identifiesclimate change; air quality; noise and assesses the potential environmentalvibration; topography, geology, and social impacts of the project, including cumulative impacts, focusing on key areas such astopsoil; water resources; biodiversity water resources,and ecosystems; population and demographics; employment and livelihoods; land use; transport and infrastructure; archaeology; cultural heritage,heritage; and resettlement.
In addition to the project elements identified above, certain other activities and facilities are expected to be developed over time, either as part of or in support of the project, that do not constitute part of the project for the purposes of the ESIA. These include project expansion to support an increase in plant feed throughput from 100,000 t/d to 160,000 t/d and the long-term power supply. While the impacts of these project elements, and their mitigation and management, are not directly addressed in the ESIA they are considered in the cumulative impact assessment of the ESIA.
OTLLC has posted environmental bonds to the Mongolian Ministry of Environment, Green Development and Tourism (“MEGDT”) in accordance with the Minerals Law of Mongolia for restoration and environmental management work required for exploration and the limited development work undertaken at the site.
OTLLC has implemented and audited an environmental management system ("EMS"(“EMS”) that conforms to the requirements of ISO 14001:2004.
The management plans developed for the Oyu Tolgoi project address the management of health, safety, environment, and social aspects associated with the project. The management plans form part of the mine’s Integrated Health, Safety, Environment and Community Management System (“HSECMS”). The HSECMS has been audited and is certified to ISO 14001 : 2004.
Tailings Storage Facility
The EMSexisting TSF is located 2 km east of the Oyut open pit, about 5 km southeast of the process plant, and within the Oyu Tolgoi mining licence. Conventional thickened tailings are currently deposited.
For the first 18 years of production, the TSF will consist of two cells, each approximately 4 km2 in size, to store a total of 670 Mt of tailings. The facility will be constructed in two stages, starting with Cell 1 and then continuing with Cell 2. Conventional thickened tailings are currently deposited in Cell 1.
The TSF receives thickened (60% to 64% solids density) tailings from the tailings thickeners at the Oyu Tolgoi concentrator. A floating barge pump station returns all supernatant reclaim water to the main process water pond at the concentrator for reuse. The TSF embankment is raised each year using a downstream methodology to ensure that sufficient storage capacity for ongoing tailings deposition, with flood storage and freeboard, is retained at all times.
Water Management
The Gunii Hooloi basin extends 35 km to 70 km north of the Oyu Tolgoi site, and is the source of raw water for the mining operations. Water demand for the Oyu Tolgoi facilities has been calculated at between 588 L/s and 785 L/s, with an average yearly demand of 696 L/s, to meet a production rate of 100,000 t/d. The Gunii Hooloi aquifer can meet the mine water requirements. Updated hydrogeological modelling, completed in 2013, demonstrates that the Gunii Hooloi aquifer is capable of providing 1,475 L/s.
Water management and conservation were given the highest priority in all aspects of the Oyu Tolgoi project design. The current water budget is based on the use of 550 L/s and operating performance of the concentrator suggests this is a reasonable estimate. The water consumption compares favourably with other large operations in similar arid conditions.
Due to its proximity to the Oyut open pit, the Undai River has been diverted. The river diversion system consists of detailed plans to control the environmentalthree components: a dam, diversion channel, and social management aspectssubsurface diversion.
Closure and Reclamation Planning
Current closure planning is based on a combination of all project activities following the commencement of commercial production from the OTLLC open pit in 2013.progressive rehabilitation and closure planning. The Oyu Tolgoi ESIA builds upon an extensive bodyMine Closure Plan for OTLLC was completed in June 2012, updated in 2014, and is based on the design status at that time.
Permitting Considerations
The Minerals Law of studiesMongolia (2006) and reports,Mongolian Land Law (2002) govern exploration, mining, and Detailed Environmental Impact Assessments ("DEIAs") that have been preparedland use rights for project design and development purposes, and for Mongolian approvals under the following laws:
Social Considerations
A social analysis was completed through the commissioning of a Socio-Economic Baseline Study and the preparation of a Social Impact Assessment ("SIA"(“SIA”) for the Oyu Tolgoi project.
Community and other studiessocial management plans, procedures and activities thatstrategies have been prepareddeveloped. The surrounding community (predominantly herders) and undertaken bylocal government are kept fully informed about mine developments and provide input and review of implementation of plans, procedures and strategies that directly affect them.
Markets and Contracts
Commodity pricing is based on pricing from the Turquoise Hill’s October 2016 Technical Report titled “2016 Oyu Tolgoi Technical Report”, which uses the 2016 Oyu Tolgoi Feasibility Study as a basis, and which in turn is based on reviews of long-term consensus estimates reported in public reports.
OTLLC has developed a marketing strategy for OTLLC.
Under the terms of the Entrée/Oyu Tolgoi JV,JVA (Article 12), Entrée retains the right to take the product in kind. For the purposes of the 2018 Technical Report, it has been assumed that Entrée takes control of its portion of the bagged concentrate and that the sales of concentrate will use the same approximate smelter terms, transport and other marketing costs as for the OTLLC concentrate.
Wood did not review contracts, pricing studies, or smelter terms developed by OTLLC or its third-party consultants as these were considered by OTLLC to be confidential to OTLLC. Instead, Wood relied on summary pricing and smelting information provided by OTLLC within the 2016 Oyu Tolgoi Feasibility Study and OTLLC’s BDT31. Based on the review of this summary information, the OTLLC smelter terms are similar to smelter terms that Wood is responsiblefamiliar with, and the metal pricing is in line with Wood’s assessment of industry-consensus long-term pricing estimates.
Capital Cost Estimates
Phase 2 capital cost and sustaining cost estimates were prepared as separate and independent estimates. The overall Phase 2 capital cost and sustaining cost estimates are from the Phase 2 estimates in the 2016 Oyu Tolgoi Feasibility Study.
The capital cost estimate represents the overall development for 80%the Hugo North/Hugo North Extension Lift 1 underground mine, supporting shafts, the concentrator conversion project, and the infrastructure expansion project. The capital estimate also includes the costs associated with the engineering, procurement and construction management (“EPCM”) and owner’s project costs. Costs include value-added tax (“VAT”) and duties. The overall estimated capital cost to design, procure, construct, and commission the complete expansion, inclusive of allan underground block cave mine, supporting shafts, concentrator conversion, and supporting infrastructure expansion, is $5.093 billion. Table 6 provides a summary of the overall capital cost estimate.
Sustaining capital costs that are incurredwere estimated for Hugo North/Hugo North Extension Lift 1 in the 2016 Oyu Tolgoi Feasibility Study for tailings, processing and underground mining, and infrastructure/other. Table 7 provides the overall sustaining capital cost estimate for each area on adollar-per-tonne processed basis.
Wood reviewed the 2016 Oyu Tolgoi Feasibility Study overall capital and sustaining capital cost estimates, and then apportioned the estimates between the Oyu Tolgoi mining licence and the Entrée/Oyu Tolgoi JV Property for the benefit ofand derived Entrée’s 20% attributable portion based on the Entrée/Oyu Tolgoi JV, including capital expenditures, and Entrée is responsible for the remaining 20%, other than with respect to costs relating to construction or operation of mill, smelter and other processing facilities, the treatment of which is described below. Under the termsJVA. The resulting attributable portions of the Entrée/Oyu Tolgoi JV, Entrée has elected to have OTLLC debt finance Entrée's share of costs for approved programs and budgets, with interest accruing at OTLLC's actualcapital cost/sustaining capital cost of capital or prime +2%, whichever is less, at the date of the advance. Debt repayment may be madeestimates are discussed below in whole or in part from (and only from) 90% of monthly available cash flow arising from the sale of Entrée's share of products. Available cash flow means all net proceeds of sale of Entrée's share of products in a month less Entrée's share of costs of Entrée/Oyu Tolgoi JV activities for the month that are operating costs under Canadian generally accepted accounting principles.
Table 6 – Overall Capital Cost Estimate Summary
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$ Millions | Total | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||||||||||
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Concentrator expansion | 145 | — | — | — | 29.2 | 62.6 | 53.0 | — | ||||||||||||||||||||||||
Mine Shaft #2 | 194 | 31.7 | 85.5 | 46.9 | 30.2 | — | — | — | ||||||||||||||||||||||||
Mine Shaft #3 | 209 | — | 9.7 | 46.3 | 69.8 | 66.8 | 16.8 | — | ||||||||||||||||||||||||
Mine Shaft #4 | 246 | — | 6.0 | 75.5 | 66.6 | 80.3 | 17.1 | — | ||||||||||||||||||||||||
Mine Shaft #5 | 63 | 11.4 | 28.2 | 23.2 | — | — | — | — | ||||||||||||||||||||||||
Hugo North/Hugo North Extension Lift #1 U/G construction | 1,730 | 159.0 | 358.1 | 428.0 | 440.9 | 224.3 | 97.3 | 22.2 | ||||||||||||||||||||||||
Infrastructure and CHP | 404 | 50.1 | 93.5 | 76.8 | 70.1 | 78.6 | 33.8 | 1.5 | ||||||||||||||||||||||||
Misc Indirects | 902 | 44.1 | 159.6 | 191.0 | 224.3 | 171.5 | 84.7 | 26.6 | ||||||||||||||||||||||||
Detailed engineering | 79 | 28.0 | 22.9 | 21.5 | 1.9 | 2.5 | 1.3 | 0.6 | ||||||||||||||||||||||||
PMC / EPCM | 295 | 35.1 | 57.4 | 62.8 | 58.7 | 45.9 | 28.4 | 6.5 | ||||||||||||||||||||||||
Owners PM | 501 | 71.9 | 53.1 | 98.9 | 88.5 | 98.7 | 54.6 | 34.9 | ||||||||||||||||||||||||
Total expansion capital cost (excluding VAT and duty and cont.) | 4,767 | 431.3 | 874.0 | 1,070.9 | 1,080.3 | 831.2 | 387.1 | 92.4 | ||||||||||||||||||||||||
VAT and duties | 326 | 27.2 | 70.2 | 71.5 | 60.1 | 64.2 | 29.1 | 3.5 | ||||||||||||||||||||||||
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Expansion capital costs total expansion capital cost (including VAT and Duty and Cont.) | 5,093 | 458.5 | 944.2 | 1,142.4 | 1,140.4 | 895.3 | 416.2 | 95.8 | ||||||||||||||||||||||||
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Notes:
The overall capital cost estimate presented is for Hugo North/Hugo North Extension Lift |
2. | Capital costs include only direct project costs and exclude interest expense, capitalized interest, debt repayments, taxpre-payments and forex adjustments. |
3. | The 2016 Oyu Tolgoi Feasibility Study total capital cost above includes capital costs for the year 2016. |
4. | Misc = miscellaneous, UG = underground, CHP = central heating plant, PMC = project management and construction, EPCM = engineering, procurement and construction management, EPMC = engineering project management and construction, PM = project management, VAT = value-added tax, cont. = contingency. |
Table 7 – Overall Sustaining Capital Cost Estimate
Description | Unit | Value | ||||||
Tailings storage facility construction | $ | 0.91 | ||||||
Concentrator | $/t processed | 0.12 | ||||||
Underground mining | $/t processed | 6.69 | ||||||
Infrastructure | $/t processed | 0.18 | ||||||
Total | $/t processed | 7.90 | ||||||
Feed from the underground mine is planned to commence from 2020 and then ramp up to the full underground design tonnage of 95 kt/d. The mill operating rate at that time will be a nominal 110 kt/d, due to the softer and higher processing throughput rate of the Hugo North/Hugo North Extension Lift 1 ore.
Operating costs for the concentrator and infrastructure represent a combined open pit and underground mining operation post-2015, assuming the Phase 2 underground operation is undertaken in conjunction with open pit mining.
The overall operating cost estimates includes all expenses to operate and maintain the Oyu Tolgoi plant plus the sustaining capital expenditures,required to keep the plant running at its design capacity. Escalation is excluded from the operating costs per Rio Tinto guidelines. No cost of financing is included. No royalties or approximately $87M.
Table 8 provides a summary of the overall operating cost estimate. The operating costs for the Entrée/Oyu Tolgoi JV Property, and Entrée’s 20% attributable portion of the operating cost estimate, is discussed below in “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Economic Analysis – 2018 Reserve Case”.
Table 8 – Overall Phase 2 Operating Cost Estimate Summary
Description | Unit | Value | ||||||
Mining | $/t processed | 6.19 | ||||||
Processing | $/t processed | 8.41 | ||||||
Infrastructure | $/t processed | 2.04 | ||||||
Total | $/t processed | 16.64 | ||||||
Note:
1. | The overall operating cost estimate presented is for Hugo North/Hugo North Extension Lift 1. |
Economic Analysis – 2018 Reserve Case
The results of the economic analyses discussed below and in “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Preliminary Economic Analysis – Economic Analysis – 2018 PEA” constitute forward-looking statements that are based on Entrée’s 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 they are based on numerous assumptions and are subject to numerous risks and uncertainties which are more fully described under the “Cautionary Note Regarding Forward-Looking Statements” and “Item 3. Key Information – D. Risk Factors” sections in this Annual Report. There can be no assurance that such forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
The cash flows are based on data 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.
Wood apportioned the overall capital and sustaining capital costs for Phase 2 of the Oyu Tolgoi project according to Entrée’s interpretation of the terms of the Entrée/Oyu Tolgoi JVA for use in the economic assessment. This interpretation includes:
● | OTLLC is responsible for 80% of all capital expenditures incurred on the Entrée/Oyu Tolgoi JV Property for the benefit of the Entrée/Oyu Tolgoi JV and Entrée is responsible for the remaining 20%. |
● | 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. |
● | Entrée recognizes those capital costs incurred by OTLLC on the Oyu Tolgoi mining licence (facilities and underground infrastructure) 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 totallife-of-mine concentrate to be produced (for processing facilities and related infrastructure), or the estimated totallife-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. |
● | 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 Entrée/Oyu Tolgoi JV Property total capital and sustaining capital cost is estimated at $261.7 million. The total amortized capital cost is estimated at $395.7 million.
Entrée’s 20% attributable portion of the Hugo North Extension Lift 1 development/sustaining and amortized capital cost is $52.3 million and $79.1 million respectively.
The Entrée/Oyu Tolgoi JV Property total operating costs average $37.08/t processed, and are inclusive of the amortized capital, refining and smelting charges, and a 2% administrative fee.
Entrée’s 20% attributable portion of the operating costs for Hugo North Extension Lift 1 on a per tonne milled basis averages $37.08 over the LOM.
Based on the above inputs, Wood completed an economic analysis for Entrée’s 20% attributable portion of the Entrée/Oyu Tolgoi JV Property using bothpre-tax andafter-tax discounted cash flow analyses. The economic analysis was prepared using the following long-term metal price estimates: copper at $3.00/lb; gold at $1,300.00/oz and silver at $19.00/oz.
Entrée’s 20% attributable portion ofpre-tax cash flow is $382 million andafter-tax cash flow is $286 million. Entrée’s 20% attributable portion ofafter-tax cash flow using a discount rate of 8% (“NPV@8%”) is $111 million. A summary of the financial results is shown in Table 9. Internal rate of return (“IRR”) and payback are not presented, because, with 100% financing, neither is applicable.
Mine site cash costs, total cash costs (C1), andall-in sustaining costs are shown in Table 20.10 for Entrée’s 20% attributable portion. Cash costs are those costs relating to the direct operating costs of the mine site namely:
On site operating costs (direct mining, processing, and tailings). |
Capital carrying costs (amortization charge). |
Administrative fees. |
Refining, smelting, and transportation costs. |
Total cash costs (C1 costs) are the cash costs less by product credits for gold and silver.Note:All-in Includes mining and process assets depreciation and administration charge.
Table 22 below.
Units | Value | |||||||||
LOM processed material (Entrée/Oyu Tolgoi JV Property) | ||||||||||
Probable mineral reserve feed | 34.8 Mt grading 1.59% Cu, 0.55 g/t Au, 3.72 g/t Ag (1.93% CuEq) | |||||||||
Copper recovered | Mlb | 1,115 | ||||||||
Gold recovered | koz | 514 | ||||||||
Silver recovered | koz | 3,651 | ||||||||
Entrée’s 20% attributable portion financial results | ||||||||||
LOM cash flow,pre-tax | $M | 382 | ||||||||
NPV@5%,after-tax | $M | 157 | ||||||||
NPV@8%,after-tax | $M | 111 | ||||||||
NPV@10%,after-tax | $M | 89 | ||||||||
Notes:
1. | Long-term metal prices used in the NPV economic analyses are: copper $3.00/lb, gold $1,300.00/oz and silver $19.00/oz. |
2. | The mineral reserves within Hugo North Extension Lift 1 are reported on a 100% basis. OTLLC has a participating interest of 80%, and Entrée has a participating interest of 20%. Notwithstanding the foregoing, in respect of products extracted from the Entrée/Oyu Tolgoi JV Property | |
3. | Figures have been rounded. |
Table 10 – Mine Cash andAll-in Sustaining Costs for Entrée’s 20% Attributable Portion
Description | Unit | LOM Average | ||||||
Mine site cash cost | $/lb payable copper | 0.95 |
TC/RC, royalties and transport | $/lb payable copper | 0.29 | ||||||
Total cash costs before credits | $/lb payable copper | 1.25 | ||||||
Gold credits | $/lb payable copper | 0.62 | ||||||
Silver credits | $/lb payable copper | 0.06 | ||||||
Total cash costs after credits | $/lb payable copper | 0.56 | ||||||
Totalall-in sustaining costs after credits | $/lb payable copper | 1.03 | ||||||
Note: TC/RC = treatment and refining charges.
Sensitivity Analysis – Entrée Financial Results – Discount Rate Sensitivity – LHTR162018 Reserve Case
Discount Rate | Net Present Value ($M) Entrée | |
Before-Tax | After-Tax | |
Undiscounted | 440 | 328 |
5.00% | 215 | 160 |
6.00% | 187 | 139 |
7.00% | 163 | 121 |
8.00% | 142 | 106 |
9.00% | 124 | 93 |
10.00% | 109 | 81 |
Entrée/Oyu Tolgoi JV and OTLLC processing tonnagese’s 20% attributable portion was evaluated for sensitivity to variations in capital costs, operating costs, copper grade, and copper gold,price. Entrée’s 20% attributable portion is most sensitive to changes in copper price and silver metal productiongrade and less sensitive to changes in operating and capital costs.
Figure 4 is anafter-tax NPV sensitivity graph for Entrée’s 20% attributable portion. The copper grade sensitivity mirrors the LHTR16 Reserve Casecopper price and plots on the same line.
Figure 4 – After-Tax NPV@8% Sensitivity Analysis for Entrée’s 20% Attributable Portion
Note: Figure prepared by Wood, 2018.
Preliminary Economic Assessment
Introduction
The PEA that follows is shown in Figures 12 to 15 below. The production shown isan alternative development option done at the total production fromconceptual level based on mineral resources, which assesses the Entrée/Oyu Tolgoi JVinclusion of which 20% is attributable to Entrée. Total Entrée/Oyu Tolgoi JV Lift 1 production is forecast to total 34.8 Mt. Underground development on Hugo North Extension is expected to start in 2021 and deposit production is expected to commence in 2027 and continue to 2034. Entrée/Oyu Tolgoi JV Lift 1 production will reach a peak of 8.3 Mt in 2031.
The mine designs noted above that are in the alternative production cases andplan is partly based on the Entrée/Oyu Tolgoi JV Property are:
“Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Introduction” through to “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Mineral Resource Statement” and “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Recommendations” also apply to the 2018 PEA. Years presented in the future2018 PEA are for illustrative purposes only.
Mineral Resource Subset within the 2018 PEA Mine Plan
The 2018 PEA is based on the prevailing conditionssubset of mineral resources in Table 11. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Table 11 – Subset of Mineral Resources within the 2018 PEA Mine Plan
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Classification by Deposit | NSR ($/t) | Tonnage (kt) | Grades CuEq (%) | Cu (%) | Au (g/t) | Ag (g/t) | Mo (ppm) | |||||||||||||||||||||||
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Hugo North Extension, Lift 1 |
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Indicated | 100.57 | 34,800 | 1.93 | 1.59 | 0.55 | 3.72 | — | |||||||||||||||||||||||
Hugo North Extension, Lift 2 |
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Indicated | 83.80 | 78,400 | 1.64 | 1.34 | 0.48 | 3.59 | — | |||||||||||||||||||||||
Inferred | 83.80 | 88,400 | 1.64 | 1.34 | 0.48 | 3.59 | — | |||||||||||||||||||||||
Heruga – Javhlant ML |
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Inferred | 32.19 | 619,718 | 0.71 | 0.42 | 0.43 | 1.53 | 124 | |||||||||||||||||||||||
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Note: The tabulation was derived by Wood at a conceptual level from data supplied by OTLLC. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Mine Plan
For planning purposes, the 2016 Oyu Tolgoi Feasibility Study assumes that the overall underground production is capped at approximately 33 Mt/a for the foreseeable mine life, and that this cap is based on the development experience obtained from developing and operatingmill capacity; this capping assumption is used in the initial phases of Oyu Tolgoi.
Since the subset of the decision tree for the possible development options at Oyu Tolgoi, includingmineral resources within the Entrée/Oyu Tolgoi JV Property. This has been updated to include options that take advantage of productivity improvements in plant throughput that have begunProperty is planned to be recognisedmined as part of an overall strategy for the mineralization within the Oyu Tolgoi mining licence combined with that in the process plant. Entrée/Oyu Tolgoi JV Property, there are gaps in the planned production periods. Figure 5 shows the production forecast for the subset of the mineral resources within the 2018 PEA mine plan.
The decision tree shows options assuming that continuous improvementssubset of the mineral resource in plant productivity are achieved over the next five years. Then there would be key decision points for plant expansionmine plan is separated into three mining areas within the Entrée/Oyu Tolgoi JV Property: Hugo North Extension Lift 1, Hugo North Extension Lift 2, and the developmentportion of new mines atthe Heruga deposit within the Javhlant mining licence. The current level of knowledge regarding these areas suggests that panel cave mining is appropriate for all three areas.
Mineralized material delivery from Hugo North (includingExtension Lift 1 is anticipated to begin in 2021, when development commences within this area. Production from the cave is expected in 2026 when the first drawbelling occurs. Production is projected to occur for nine years (2026 to 2034) with a peak production (8.3 Mt/a) occurring in 2031.
The Hugo North Extension)mine planning and optimization indicated that the ideal elevation for the second lift (Lift 2) is approximately 400 m below Lift 1. The mine plan assumes that 723 drawpoints will be constructed between 2035 and 2046 in the Hugo North Extension Lift 2 area.
Figure 5 – 2018 PEA Production Forecast for the Subset of Mineral Resources within the 2018 PEA Mine Plan
Note: Figure prepared by Wood, 2017. Abbreviations:HN1-EJV = Hugo South, and eventually Heruga. This provides an opportunity as OTLLC will haveNorth Extension Lift 1 within the benefit of incorporating actual performanceEntrée/Oyu Tolgoi JV Property;HN2-EJV = Hugo North Extension Lift 2 within the Entrée/Oyu Tolgoi JV Property;Heruga-EJV = Heruga within the Entrée/Oyu Tolgoi JV Property.
Initial mill feed delivery from Hugo North Extension Lift 2 is assumed to begin in 2028 when development commences in the Hugo North Extension Lift 2 area. Production from Hugo North Extension Lift 2 is anticipated to begin in 2035 with the completion of the operating mine into the study before the next investment decisions are required. OTLLC plans to continue to evaluate alternative production cases in order to define the relative ranking and timing requirements for overall development options.
A 2014 study separated Heruga into a north and south zone for mine planning purposes, and assumed that these would be at separate elevations(-20 masl and-350 masl respectively). The 2018 Technical Report considers a total of 2,606 drawpoints to be included for both caves; of these 2,265 would be within the Entrée/Oyu Tolgoi JV Property, while the remainder would be within the Oyu Tolgoi mining licence.
Mineralized material will be removed by means of a conveyor to surface. Four shafts will be needed to accommodate the ventilation requirements and access for personnel, material and equipment into/out of the mine. The production rate from Heruga is considered to be the same as the Hugo North/Hugo North Extension)Extension complex (~95,000 t/d) to meet the capacity of the mill. Hence, the overall scale of the underground and surface infrastructure will be similar to that associated with Hugo North/Hugo North Extension. In the 2018 PEA mine plan, development in mill feed material would begin from the southern Heruga zone in 2065. The first drawbell would be fired in 2069, and the mine would achieve rated capacity in 2083.
Production from the Entrée/Oyu Tolgoi JV Property would cease in 2097. Average production from the Entrée/Oyu Tolgoi JV Property between 2069 and 2097 (inclusive) would be approximately 59,200 t/d.
All three mines in the 2018 PEA case are anticipated to use a similar equipment fleet based on the requirements of the common block cave technique. The following equipment will be required: mucking (LHDs); haulage (road trains and articulated haul trucks); drilling (jumbos, production drills and bolting equipment); raise bore and boxhole; utilities and underground support (flatbeds, boom trucks, fuel and lube trucks, explosive carriers, shotcrete transmixers and sprayers, etc.); surface support; and light vehicles.
Major fixed equipment will include: material handling (crushing and conveying); fans and ventilation equipment; pumping and water handling equipment; power distribution equipment; data and communications equipment; and maintenance equipment (fixed shop furnishing).
Recovery Methods
The 2018 PEA assumes that no changes will be required to the process plant from those contemplated in the Phase 2 concentrator development program (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Recovery Methods”), and that the same mill throughput will be maintained.
Project Infrastructure
The majority of the primary infrastructure and facilities required for the Oyu Tolgoi project were completed during Phase 1. The 2018 PEA assumes that the infrastructure in place for Hugo North/Hugo North Extension Lift 1 will be available for Hugo North/Hugo North Extension Lift 2, and that a similar design will be employed for the underground mining operation. For the purposes of the 2018 PEA mine plan, it was assumed that Heruga will be a completely new mine that does not take account ofpre-existing mine and support infrastructure associated with the Hugo SouthNorth/Hugo North Extension Lift 1 and Heruga. Three alternativeLift 2 mines.
Key additional infrastructure assumptions that would be needed to support the 2018 PEA mine plan in addition to that contemplated in Phase 2 include:
● | Access roads (Heruga). |
● | Electrical substation and power distribution line (Heruga). |
● | Construction of conveyor decline and shafts (Heruga). |
● | Construction of permanent underground facilities including crushing and materials handling, workshops, services, and related infrastructure (Hugo North Extension Lift 2 and Heruga). |
● | Modifications to the electrical shaft farm substation, and upgrades to some of the distribution systems (Hugo North Extension Lift 2 and Heruga). |
● | Expanded logistical and accommodations infrastructure (Hugo North Extension Lift 2 and Heruga). |
● | Underground maintenance and fuel storage facilities (Hugo North Extension Lift 2 and Heruga). |
● | Expanded water supply and distribution infrastructure (Hugo North Extension Lift 2 and Heruga). |
● | Expanded TSF capacity (Hugo North Extension Lift 2 and Heruga). |
Market Studies and Contracts
For the purposes of the 2018 PEA, it was assumed that the marketing provisions and contracts entered into for Hugo North Extension Lift 1 production caseswould be maintained (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Markets and Contracts”).
Commodity pricing for the 2018 PEA estimate is based on pricing from Turquoise Hill’s 2016 Oyu Tolgoi Technical Report, which assume expansionuses the 2016 Oyu Tolgoi Feasibility Study as a basis and incorporates a long-term industry-consensus estimate derived from public reports.
The smelter terms used were from the 2016 Oyu Tolgoi Feasibility Study as reported in Turquoise Hill’s 2016 Oyu Tolgoi Technical Report and OTLLC’s BDT31.
Environmental, Permitting and Social Considerations
Information relating to environmental studies, permitting, and social or community impact remain the same for the 2018 PEA as discussed for Hugo North Extension Lift 1 (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Environmental, Permitting and Social Considerations” above).
Tailings Considerations
The 2018 PEA assumes that additional tailings cells that have a similar design and capacity to the plantoperating Cell 1 would be used for deposition of conventional thickened tailings:
● | Future cells to support the 2018 PEA case are assumed to use similar embankment configurations as in the current TSF design. |
● | The same concepts for tailings deposition and reclaim water return will continue to be used. |
● | Improvements to water reclaim mechanisms to recycle as much water as practicable will continue. |
These additional cells would have the capacity will beto contain thelife-of-mine tailings under the 2018 PEA assumptions. However, the cost of constructing additional cells may increase as the haul distances for mine waste and other embankment materials increase.
Closure Considerations
No closure considerations were evaluated as part of the strategic2018 PEA plan, due to the long timeframe envisaged before closure would be needed. It was anticipated that the closure planning would be similar to that proposed for the 2014 OTLLC closure plan.
Capital Costs
The 2016 Oyu Tolgoi Feasibility Study initial capital cost estimate to develop Hugo North/Hugo North Extension Lift 1 and design, procure, construct, and commission the complete Phase 2 expansion, inclusive of an underground block cave mine, supporting shafts, concentrator conversion, and supporting infrastructure expansion is being undertaken by OTLLC.$5.093 billion (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Capital Cost Estimates” above). The three alternative production cases shownadditional capital to develop Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit is estimated at $1.801 billion and $2.541 billion respectively. Table 12 provides a summary of the overall capital cost projections for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit.
Overall sustaining capital costs are based on extrapolations from the 2016 Oyu Tolgoi Feasibility Study costs (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Capital Cost Estimates” above) with adjustments made for:
● | Tailings management facility costs that were increased to account for longer hauling distances; and a higher contingency due to lack of designs. |
● | Hugo North/Hugo North Extension Lift 2 and Heruga development costs that were increased by approximately 8% and 10% respectively compared to Hugo North/Hugo North Extension Lift 1 only. |
Table 13 provides an overview of the overall sustaining capital cost estimate for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit.
Wood apportioned the capital cost and sustaining capital cost estimates to the Entrée/Oyu Tolgoi JV Property and to Entrée’s 20% attributable portion based on Entrée’s interpretation of the Entrée/Oyu Tolgoi JVA (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Economic Analysis” above). Entrée’s 20% attributable portion of the capital cost and sustaining capital cost estimates is discussed in “Item 4. Information on the decision tree in Figure 19 are:
Table 12 – Overall Capital Costs
Area | Units | Value | ||||||
Hugo North/Hugo North Extension Lift 1 and concentrator expansion | $ | 5,093 | ||||||
Hugo North/Hugo North Extension Lift 2 | $ | 1,801 | ||||||
Heruga | $ | 2,541 | ||||||
Total capital cost (including VAT and duty and contingency) | $ | 9,434 | ||||||
Note:
1. | The overall capital cost presented is for |
Table 13 – Overall Sustaining Capital Costs
Description | Unit | Value | ||||||
Tailings storage facility construction | $/t processed | 1.09 | ||||||
Concentrator | $/t processed | 0.10 | ||||||
Underground mining | $/t processed | 7.40 | ||||||
Infrastructure | $/t processed | 0.18 | ||||||
Total | $/t processed | 8.76 | ||||||
Note:
1. | The overall sustaining capital cost presented is for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit. |
Operating Costs
Table 14 provides a breakdown of the projected operating costs for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit.
Anticipated operating costs on a per tonne milled basis averages $17.07. Entrée’s 20% attributable portion of the operating cost estimate is discussed in “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Preliminary Economic Analysis – Economic Analysis”.
Table 14 – Overall Operating Costs
Description | Unit | Value | ||||||
Mining | $/t processed | 5.67 | ||||||
Processing | $/t processed | 9.37 | ||||||
Infrastructure | $/t processed | 2.04 | ||||||
Total | $/t processed | 17.07 | ||||||
Note:
1. | The overall operating cost presented is for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit. |
Economic Analysis – 2018 PEA
This section provides the Hugo North (including Hugo North Extension) Lift 1 development is followed by production from Hugo North (including Hugo North Extension) Lift 2, Hugo South and Heruga. The average throughput rate is approximately 140 ktpd or 51 Mtpa and the potential processing schedule for LOM 140 is shown in Figure 20 below.
The PEA mine plan is not yet at the Feasibility Study stage, in particular the definition of the expansion sizes and costing of the cases. OreWin recommends that the options be studied further and that the timing of the new mines be defined in more detail.
The PEA that follows is an alternative development option done at the Reserve Case reported in 2014 OTTR, of which the LHTR16 Reserve Case is a subset.
Wood apportioned the potential for further expansions. The LHTR16 demonstrates the potential for expansioncapital and shows thatsustaining capital costs according to Entrée’s interpretation of the Entrée/Oyu Tolgoi JVA (summarized in “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV resources are an integral partProject, Mongolia – Economic Analysis” above) for use in the 2018 PEA. The Entrée/Oyu Tolgoi JV Property total capital and sustaining capital cost for the 2018 PEA is estimated at $8,637.3 million. The total amortized capital cost is estimated at $1,846.7 million. Entrée’s 20% attributable portion of the long-term development plans.
The Entrée/Oyu Tolgoi JV Property operating costs used in the experience obtained from developing2018 PEA average $23.35/t processed and operating the initial phasesare inclusive of the Oyu Tolgoi project.
Based on the above inputs, Wood completed an economic analysis for Entrée’s 20% attributable portion of the Entrée/Oyu Tolgoi JV Property using bothpre-tax andafter-tax discounted cash flow analysis. The economic analysis has been prepared using the following long-term metal price estimates: copper at $3.00/lb; gold at $1,300.00/oz and silver at $19.00/oz.
Entrée’s 20% attributable portion ofpre-tax cash flow is under the control$2,078 million andafter-tax cash flow is $1,522 million. Entrée’s 20% attributable portion ofafter-tax cash flow using NPV@8% is $278 million. A summary of the OTLLC. production and financial results for Entrée’s 20% attributable portion are shown in Table 15. Mine site cash costs, C1 cash costs, andall-in sustaining costs for Entrée’s 20% attributable portion are shown in Table 16. IRR and payback are not presented because with 100% financing, neither is applicable.
The future work recommendationsNPV@8%pre-tax andafter-tax sensitivity to Heruga for Entrée’s 20% attributable portion is relatively small, since Heruga’s NPV@8%pre-tax andafter-tax is approximately $1.8 million and $1.5 million respectively.
Table 15 – 2018 PEA Production and Financial Results for Entrée’s 20% Attributable Portion (basecase is bolded)
Units | Item | |||||
LOM processed material (Entrée/Oyu Tolgoi JV Property) | ||||||
Subset of Indicated mineral resources in the 2018 PEA mine plan | 113 Mt grading 1.42% Cu, 0.50 g/t Au, 3.63 g/t Ag (1.73% CuEq) | |||||
Subset of Inferred mineral resources in the 2018 PEA mine plan | 708 Mt grading 0.53% Cu, 0.44 g/t Au, 1.79 g/t Ag (0.82 % CuEq) | |||||
Copper recovered | Mlb | 10,497 | ||||
Gold recovered | koz | 9,367 | ||||
Silver recovered | koz | 45,378 | ||||
Entrée’s attributable portion financial results | ||||||
LOM cash flow,pre-tax | $M | 2,078 | ||||
NPV@5%,after-tax | $M | 512 | ||||
NPV@8%,after-tax | $M | 278 | ||||
NPV@10%,after-tax | $M | 192 |
Notes:
1. | Long-term metal prices used in the NPV economic analyses are: copper $3.00/lb, gold $1,300.00/oz and silver $19.00/oz. |
2. | The Mineral resources are reported on a 100% basis. OTLLC has a participating interest of 80%, and Entrée has a participating interest of 20%. Notwithstanding the foregoing, in respect of products extracted from the Entrée/Oyu Tolgoi JV Property pursuant to mining carried out at depths from surface to 560 m below surface, the participating interest of OTLLC is 70% and the participating interest of Entrée is 30%. |
3. | Figures have been rounded. |
Table 16 – 2018 PEA Mine Cash andAll-in Sustaining Costs for Entrée’s 20% Attributable Portion
Description | Unit | LOM Average | ||||
Mine site cash cost | $/lb payable copper | 1.66 | ||||
TC/RC, royalties and transport | $/lb payable copper | 0.32 | ||||
Total cash costs before credits | $/lb payable copper | 1.97 | ||||
Gold credits | $/lb payable copper | 1.22 | ||||
Silver credits | $/lb payable copper | 0.08 | ||||
Total cash costs after credits | $/lb payable copper | 0.68 | ||||
Totalall-in sustaining costs after credits | $/lb payable copper | 1.83 |
Sensitivity Analysis
Entrée’s 20% attributable portion is most sensitive to changes in copper price and grade and less sensitive to changes in operating and capital costs. Figure 6 shows theafter-tax sensitivity results for NPV@8% for Entrée’s 20% attributable portion. The copper grade sensitivity generally mirrors the 2014 OTTR, although primarily focusedcopper price.
Figure 6 – 2018 PEAAfter-Tax NPV@8% Sensitivity Analysis for Entrée’s 20% Attributable Portion
Note: Figure prepared by Wood, 2017.
Recommendations
Wood was not given access by OTLLC to information on the portions of the Oyu Tolgoi licence area, will be of benefit to Entrée as they will include examination of the Entrée/Oyu Tolgoi JV Property.
● | Information on, and site visits to the process plant, TSF, and underground access development. |
● | Access to OTLLC operations site personnel to discuss information relevant to Entrée’s joint venture interest in the Entrée/Oyu Tolgoi JV Property. |
Wood is therefore not in a position to make meaningful recommendations for further work with Turquoise Hillfor areas other than exploration and OTLLC to study the options further and that the timing of the new mines be defined in more detail.
A work program is under the control of Rio Tinto on behalf of manager OTLLC. The future work recommendations in the 2014 OTTR, although focussed on the Oyu Tolgoi licence, will be of benefit to Entrée as they will include examination of the Entrée/OTLLC JV Property.
In the Phase 1 work program, eight widely-spaced core holes for each of the Castle Rock and Southeast IP targets drilled to depths averaging about 400 m, for a total program of 16 core holes totaling 6,400 m, are recommended to test these targets. The exact locations and depths of the holes should be determined through a detailed review of the existing exploration results, and access considerations. Assuming anall-in drilling cost of $275/m, the proposed program is estimated at $1.75 million.
For the Phase 2 work program, Wood recommends an infill drill campaign be conducted within Lift 2 of the Hugo North Extension deposit with the objective of potentially converting the Inferred mineral resources to higher confidence categories. A drill program could also be conducted to investigate a potential further northern continuation of the mineralized zone. These targets are best tested from underground drill stations. Access to any such suitable underground drill stations will not be available until 2021 at the earliest. Therefore, it is not considered to be currently feasible to provide a meaningful drill layout or budget for such programs.
Turquoise Hill’s 2016 Oyu Tolgoi deposits, seeking low-costTechnical Report published multiple development options and continuing assessment of legacy datasets to enable future discover. Castle Rock on the Entrée/for Oyu Tolgoi JV Property is oneincluding a plant expansion to 50 Mt/a, 100 Mt/a, and 120 Mt/a. Wood recommends that Entrée independently complete strategic planning expansion scenarios as part of the identified priority targetsPhase 2 work program in order to understand the impact to value that willthese scenarios could bring to Entrée. This work could be the focuscompleted at a cost of the future exploration program.
NON-MATERIAL PROPERTIES
Entrée has interests in othernon-material properties in the United States, Australia and Peru as follows. For additional information regarding thesenon-material properties, including Entrée'se’s ownership interest and obligations, see "Item“Item 5. Operating and Financial Review and Results -– A. Operating Results"Results” below.
Blue Rose Joint Venture, Australia . |
The rights to explore for and develop iron ore on EL 6006 are held by Fe Mines Limited (“FML”), a subsidiary of Lodestone Equities Limited (“Lodestone”) pursuant to a prior agreement with the joint venture overBlue Rose JV partners. On April 18, 2017, the Golden Sophia shallow gold target confirmedBlue Rose JV partners entered into a Deed of Consent, Sale and Variation (the “Deed”) with Lodestone and FML. In accordance with the previous Battle Mountain gold in soil anomalyDeed, the Blue Rose JV partners transferred title to EL 6006 and definedassigned their native title agreements to FML and agreed to vary a new, linear gold anomaly located approximately 700 metrespayment required to be made to the northeast.
The Braemar Iron Formation is the host rock to magnetite mineralisation on EL 6006. The Braemar Iron Formation is a meta-sedimentary iron siltstone, which is inherently soft. The mineralization within the Braemar Iron Formation forms a simple dipping tabular body with only minor faulting, folding and intrusives. Grades, thickness, dip, and outcropping geometry remain very consistent over kilometres of strike.
Royalty Pass-Through Payments, Cañariaco Project Royalty, Peru . |
On June 8, 2018, the Company sold the Cañariaco Project Royalty to Anglo Pacific, whereby the Company transferred all the issued and outstanding shares of its subsidiaries that directly or indirectly hold the Cañariaco Project Royalty to Anglo Pacific in return for consideration of $1.0 million, payable by the issuance of 478,951 Anglo Pacific common shares. In addition, Entrée retains the right to a portion of any future royalty income received by Anglo Pacific in relation to the Cañariaco Project Royalty (“Royalty Pass-Through Payments”) as follows:
○ | 20% of any royalty payment received for any calendar quarter up to and including December 31, 2029; |
○ | 15% of any royalty payment received for any calendar quarter commencing January 1, 2030 up to and including the quarter ending December 31, 2034; and |
○ | 10% of any royalty payment received for any calendar quarter commencing January 1, 2035 up to and including the quarter ending December 31, 2039. |
The Cañariaco copper project includes the Cañariaco Norte copper-gold-silver porphyry deposit, as well as the adjacent Cañariaco Sur and Quebrada Verde porphyry prospects, located within the western Cordillera of the Peruvian Andes in the Department of Lambayeque, Northern Peru.
During the three months ended March 31, 2019, the Company disposed of all its investment in Anglo Pacific common shares for net proceeds of $1.0 million.
None.
Entrée is a resource company engaged in exploring mineral resource propertiescompany with interests in development and exploration properties in Mongolia, Peru and Australia.
The Company’s principal asset is its interest in the United States, Mongolia, Australia and Peru. Our two principal assets are our Ann Mason Project in Nevada and ourEntrée/Oyu Tolgoi JV Property – a carried 20% carriedparticipating interest in two of the Oyu Tolgoi project deposits, and a carried 20% or 30% interest (depending on the depth of mineralization) in Mongolia, throughthe surrounding large, underexplored, highly prospective land package located in the South Gobi region of Mongolia. Entrée’s joint venture partner, OTLLC, holds the remaining interest.
The Oyu Tolgoi project includes two separate land holdings: the Oyu Tolgoi mining licence, which is held by OTLLC (66% Turquoise Hill and 34% the Government of Mongolia), and the Entrée/Oyu Tolgoi JV.
The Entrée/Oyu Tolgoi JV Property includes the Hugo North Extension copper-gold deposit (HNE) and the majority of the Heruga copper-gold-molybdenum deposit. The resources at Hugo North Extension include a Probable reserve, which is included inpart of Lift 1 of the Oyu Tolgoi underground block cave mining operation. Although underground development pre-start activities are underway, first development production from Lift 1 is not expected until after 2020. A second lift for thein development by project operator Rio Tinto. When completed, Oyu Tolgoi underground block cave operation, including additional resources fromis expected to become the world’s third largest copper mine.
In addition to the Hugo North Extension has been proposed but has not yet been modeled withincopper-gold deposit, the existing mine plan
The Company’s financial statements for the yearsyear ended December 31, 2015, 2014, and 20132019 have been prepared in accordance with U.S. GAAP.IFRS. The consolidated financial statements have been prepared underon the historical cost convention, as modified by financialbasis of accounting principles applicable to a going concern which assumes that the Company will be able to continue for the foreseeable future and will be able to realize its assets and financialdischarge its liabilities at fair value through profit or loss.in the normal course of business. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect.
The Company’s expected 2020 full year expenditures, which include Mongolian site management and compliance costs, is between $1.5 million and $1.7 million.
Critical Accounting Policies and Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United StatesIFRS requires management to make estimates and assumptions that affect the amounts reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date ofin the financial statements and the reported amount of revenues and expenses during the period.accompanying notes. Actual results could differ materially from those estimates.
Significant estimates and judgements used in the preparation of these estimates.
Determination of functional currencies
The determination of the Company’s functional currency is a matter of judgment based on an assessment of the specific facts and circumstances relevant to determining the primary economic environment of each individual entity within the group. The Company reconsiders the functional currencies used when there is a change in events and conditions considered in determining the primary economic environment of each entity.
Income taxes
The Company must make significant estimates in respect of the provision for income taxes and judgments in determiningthe composition of its deferred income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, the recoverability of deferred tax assets and deferred income tax liabilities. The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question which may, on resolution in the calculationfuture, result in adjustments to the amount of certaincurrent or deferred income tax assets or liabilities, and liabilities that arisethose adjustments may be material to the Company’s statement of financial position and results of operations.
The determination of the ability of the Company to utilize tax losses carried forward to offset income taxes payable in the future and to utilize temporary differences which will reverse in the future requires management to exercise judgment and make assumptions about the Company’s future performance. Management is required to assess whether the Company is more likely than not to be able to benefit from differencesthese tax losses and temporary differences. Changes in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes in these estimates may result in an increase or decrease to the tax provision in a subsequent period. Recovery of a portion of the deferred tax assets is impacted by Company plans with respect to holding or disposing of certain assets. Changes inproject completion, economic conditions, exploration results, metal prices and other factors having an impact on future taxable income streams could result in changesrevisions to the estimates of benefits to be realized or the Company’s assessments of its ability to utilize tax losses before expiry. These revisions could result in material adjustments to the consolidated financial statements.
Share-based compensation
The Company uses the Black-Scholes option pricing model for the valuation of share-based compensation. Option pricing models require the input of the subjective assumptions including expected price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s net loss and reserves.
Plan of arrangement – fair value of net assets distributed
On May 9, 2017, the Company completed the Arrangement under Section 288 of the BCBCA pursuant to which Entrée transferred its wholly owned subsidiaries that directly or indirectly held the Ann Mason Project in Nevada and the Lordsburg property in New Mexico to Mason Resources. Accounting for this transaction involves critical judgements usedand estimates in determining the income tax expense.
A. | Operating Results |
The following discussion is intended to supplement the audited consolidated financial statements of the Company for the years ended December 31, 2015, 20142019 and 2013,2018 and the related notes thereto, which have been prepared in accordance with U.S. GAAP.IFRS. This discussion should be read in conjunction with the audited consolidated financial statements contained in this Annual Report. This discussion contains "forward-looking statements"“forward-looking statements” that are subject to risk factors set out under the heading "Item“Item 3. Key Information – D. Risk Factors"Factors”. See "Cautionary“Cautionary Note Regarding Forward-Looking Statements"Statements” above.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
Total Revenues | $ | - | $ | - | $ | - | ||||||
Net Loss | (7,831,063 | ) | (8,669,188 | ) | (11,422,025 | ) | ||||||
Net loss per share, basic and diluted | (0.05 | ) | (0.06 | ) | (0.08 | ) | ||||||
Working capital | 21,844,252 | 32,603,711 | 46,394,496 | |||||||||
Total assets | 61,662,485 | 79,690,498 | 97,395,105 | |||||||||
Total long term liabilities | 39,315,880 | 44,269,904 | 50,956,860 | |||||||||
(1) Working Capital is defined as Current Assets less Current Liabilities. |
The Company’s operating results for the yearthree years ended December 31, 2015, net loss was $7,831,063 compared to $8,669,188 in the year ended December 31, 2014. 2019, 2018 and 2017 are summarized as follows:
2019 | 2018 | 2017 | ||||||||||
Expenses | ||||||||||||
Exploration | $ | 173 | $ | 175 | $ | 332 | ||||||
General and administrative | 1,490 | 1,145 | 1,656 | |||||||||
Share-based compensation | 340 | 506 | 678 | |||||||||
Depreciation | 105 | 22 | 20 | |||||||||
Other | - | (13) | 192 | |||||||||
Operating loss | 2,108 | 1,835 | 2,878 | |||||||||
Gain on sale of investments | (123) | - | - | |||||||||
Foreign exchange (gain) loss | (195) | 287 | (380) | |||||||||
Interest income | (137) | (111) | (116) | |||||||||
Interest expense | 319 | 307 | 287 | |||||||||
Loss from equity investee | 273 | 175 | 215 | |||||||||
Finance costs | 29 | - | - | |||||||||
Deferred revenue finance costs | 3,250 | 2,985 | - | |||||||||
Gain on sale of mining property interest | - | (353) | - | |||||||||
Unrealized loss on investments | - | 73 | - | |||||||||
Loss on the Arrangement | - | - | 33,627 | |||||||||
Loss before income taxes | 5,524 | 5,198 | 36,511 | |||||||||
Income tax recovery | - | - | (72) | |||||||||
Net loss from continuing operations | 5,524 | 5,198 | 36,439 | |||||||||
Discontinued operations | ||||||||||||
Net loss from discontinued operations | - | - | 176 | |||||||||
Net loss for the year | 5,524 | 5,198 | 36,615 | |||||||||
Other comprehensive loss (income) | ||||||||||||
Foreign currency translation | 2,095 | (3,372) | 1,684 | |||||||||
Total comprehensive loss | $ | 7,619 | $ | 1,826 | $ | 38,299 | ||||||
Net loss per common share | ||||||||||||
Basic and fully diluted – continuing operations | $ | (0.03) | $ | (0.03) | $ | (0.21) | ||||||
Basic and fully diluted – discontinued operations | $ | (0.00) | $ | (0.00) | $ | (0.00) | ||||||
Total assets | $ | 6,102 | $ | 7,432 | $ | 8,257 | ||||||
Totalnon-current liabilities | $ | 52,907 | $ | 46,835 | $ | 32,499 | ||||||
Working capital(1) | $ | 5,485 | $ | 6,788 | $ | 7,203 |
(1) | Working capital is defined as Current Assets less Current Liabilities. |
Operating Loss:
During the year ended December 31, 2015, Entrée incurred lower2019, the Company’s operating loss was $2.1 million compared to $1.8 million and $2.9 million for the years ended December 31, 2018 and 2017, respectively.
Exploration costs in 2019 included expenditures primarilyof $0.2 million for administration costs in Mongolia compared to $0.1 million in the comparative 2018 and 2017 periods. Holding costs on all other properties in 2019, 2018 and 2017 were insignificant.
Overall, general and administration expenditures in 2019 were 30% higher compared to the same period in 2018 due to a combinationan increase in advisory and travel costs in relation to negotiation of lower exploration costs, lower consultancypotential Entrée/Oyu Tolgoi JVA amendments in 2019 and advisory fees and higher foreign exchange gains. As at December 31, 2015, working capital was $21,844,252 compared to $32,603,711 as at December 31, 2014. The decreaseno receipt of cost-recovery reimbursements from Mason Resources which were received in working capital is primarily the result of cash used in operations during the period. As at December 31, 2015, total assets were $61,662,485 compared to $79,690,498 as at December 31, 2014. The decrease in total assets over the prior year is primarily the effect of a decrease in working capital described above combined with unrealized foreign currency translation losses on mineral property interests. As at December 31, 2015, total long term liabilities were $39,315,880 compared to $44,269,904 as at December 31, 2014. The decrease in long term liabilities over the prior year is largely due to decreased deferred revenue resulting from unrealized foreign currency translation gains.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||
Exploration | $ | 5,139,076 | $ | 9,018,994 | ||||
General and administrative | 4,555,363 | 3,936,413 | ||||||
Interest expense (income) | 412,077 | (30,154 | ) | |||||
Stock-based compensation | 197,375 | 251,390 | ||||||
Deferred income tax expense (recovery) | 160,173 | (3,933,392 | ) | |||||
Consultancy and advisory fees | 125,000 | 830,623 | ||||||
Loss from equity investee | 118,712 | 107,907 | ||||||
Depreciation | 42,528 | 65,517 | ||||||
Current income tax expense (recovery) | 218 | (123,255 | ) | |||||
Impairment of mineral property interests | - | 552,095 | ||||||
Gain on sale of mineral property interest | - | (28,096 | ) | |||||
Foreign exchange gain | (2,919,459 | ) | (1,978,854 | ) | ||||
Net loss | $ | 7,831,063 | $ | 8,669,188 |
Year Ended December 31, 2015 | Year Ended December 31, 2014 | ||||||||
US | $ | 3,507,357 | $ | 7,066,997 | |||||
Mongolia | 1,488,452 | 1,672,341 | |||||||
Other | 165,101 | 315,549 | |||||||
Total costs | 5,160,910 | 9,054,887 | |||||||
Less stock-based compensation | (21,834 | ) | (35,893 | ) | |||||
Total expenditures, cash | $ | 5,139,076 | $ | 9,018,994 |
Depreciation expenses in 2019 were higher compared to the year ended December 31, 2015 resulted from a decreasecomparative periods in drilling2018 and 2017 due to the adoption of new IFRS accounting standard relating to leases effective January 1, 2019.
Non-operating Items:
The gain on sale of investments of $0.1 million in 2019 is related expenditures.
The foreign exchange gain in New Mexico -2019 was primarily the Lordsburg propertyresult of movements between the C$ and U.S. dollar as the Company holds its cash in both currencies and the Oak Grove property. In September 2013 Entrée abandoned the Oak Grove property and recorded an impairment of mineral property interests of $437,732.
Interest expense was primarily related to the Purchase Agreement,loan payable to OTLLC pursuant to the Entrée paid $100,000e/Oyu Tolgoi JVA and issued 500,000 Common Shares of the Company. The Lordsburg property is subject to a 2% NSR royalty, which may be bought downvariable interest rate.
The amount recognized as a loss from equity investee is related to 1% at any time up to and including January 1, 2017 for $2.4 million. The buydown price is payable in cash or a combination of cash and Common Shares at Entrée's election.
During 2018, the Company adopted IFRS and was required to recognize anon-cash loss of $33.6 million on thespin-out of the U.S.-based assets to Mason Resources in 2017, which was the main difference between 2018 and 2017 results. In 2018, the Company also adopted IFRS 15 – Revenue from Contracts with Customers, which required the Company to begin recordingnon-cash finance costs related to the deferred revenue balance, specifically the Sandstorm stream.
The total assets as at December 31, 2019 were comparable to the balance at December 31, 2018 while totalnon-current liabilities were higher due to recording thenon-cash deferred revenue finance costs for the 2019 year. This is consistent with the change in total assets and totalnon-current liabilities as at December 31, 2018 compared to December 31, 2017.
REVIEW OF OPERATIONS
MONGOLIA
Entrée/Oyu Tolgoi JV Project
No significant exploration has been completed by OTLLC on the Entrée/Oyu Tolgoi JV Property since February 2013 and work planned for 20162020 has not yet been finalized.
Since formation, and as of December 31, 2015,2019, the Entrée/Oyu Tolgoi JV hadhas expended $27.8approximately $32.9 million to advance the Entrée/Oyu Tolgoi JV Property. Under the termsAs of the Entrée/Oyu Tolgoi JV,December 31, 2019, OTLLC has contributed on Entrée'se’s behalf the required cash participation amount of $6.8 million, equal to 20% of the $27.8$32.9 million incurred to date, plus accrued interest at prime plus 2%.
For the three months ended December 31, 2019 and December 31, 2018, Entrée has a 100% interest inexpenses related to Mongolian operations were not significant. For the western portion of the Shivee Tolgoi mining licence.
AUSTRALIA
Blue Rose Joint Venture
Entrée has a 55.79%56.53% interest in the Blue Rose copper-iron-gold-molybdenum joint venture property,JV to explore for minerals other than iron ore on EL 6006, with Giralia Resources Pty Ltd, now a subsidiary of Atlas Iron Limited (ASX:AGO) ("Atlas"),Hancock Prospecting Pty Ltd, retaining a 44.21%43.47% interest. The propertyEL 6006, totalling 257 km2, is located in the Olary Region of South Australia, 300 kilometres north-northeastkm northeast of Adelaide. Magnetite iron formations occur in the southern portionAdelaide and 130 km west-southwest of this 716 square kilometre tenement,Broken Hill.
The rights to explore for and a zone of copper oxide mineralization and a gold target (Golden Sophia) are located in the north-central area of the tenement. The joint venture covers tenement EL5129, which was granted on July 19, 2012, for a 3-year term. An application to renew the tenement for an additional 2-year term was filed on June 11, 2015 and was approved effective August 4, 2015.
The propertyBraemar Iron Formation is situatedthe host rock to magnetite mineralisation on EL 6006. The Braemar Iron Formation is a meta-sedimentary iron siltstone, which is inherently soft. The mineralization within 50the Braemar Iron Formation forms a simple dipping tabular body with only minor faulting, folding and intrusives. Grades, thickness, dip, and outcropping geometry remain very consistent over kilometres of strike.
Expenditures in 2019 were minimal and related to administrative costs in Australia.
INVESTMENTS
In August 2015, the international border with Chile, and initiation of work is subject to Entrée obtaining a Supreme DecreeCompany acquired from Candente the Peruvian government allowing it to work on the property. Subject to obtaining the Supreme Decree, Entrée may earn a 70% interest by making cash payments totaling $215,000 and expending a minimum of $1.5 million on exploration, to include a minimum 6,000 metres of diamond drilling, within 24 months. Once Entrée has earned a 70% interest, it may acquire a further 30% interest by paying the vendors $2 million within 24 months. The vendors would retain a 2% NSR royalty, half of which may be purchased at any time for $1 million.
On June 8, 2018, the Company sold the Cañariaco Norte copper-gold-silver deposit,Project Royalty to Anglo Pacific, whereby the Company transferred all the issued and outstanding shares of its subsidiaries that directly or indirectly hold the Cañariaco Project Royalty to Anglo Pacific in return for consideration of $1.0 million, payable by the issuance of 478,951 Anglo Pacific common shares. In addition, Entrée retains the right to the Royalty Pass-Through Payments as well asfollows:
● | 20% of any Cañariaco Project Royalty payment received for any calendar quarter up to and including December 31, 2029; |
● | 15% of any Cañariaco Project Royalty payment received for any calendar quarter commencing January 1, 2030 up to and including the quarter ending December 31, 2034; and |
● | 10% of any Cañariaco Project Royalty payment received for any calendar quarter commencing January 1, 2035 up to and including the quarter ending December 31, 2039. |
In accordance with IFRS, the adjacent Cañariaco Sur and Quebrada Verde prospects, locatedCompany has attributed a value of nil to the Royalty Pass-Through Payments since realization of the proceeds is contingent upon several uncertain future events not wholly within the western Cordilleracontrol of the Peruvian AndesCompany.
In 2019, the Company disposed of all its investment in the Departmentcommon shares of Lambayeque, Northern Peru.
B. | Liquidity and Capital Resources |
Year ended December 31 | ||||||||
2019 | 2018 | |||||||
Cash flows used in operating activities | ||||||||
- Before changes innon-cash working capital items | $ | (1,502) | $ | (1,243) | ||||
- After changes innon-cash working capital items | (1,816) | (777) | ||||||
Cash flows (used in) from financing activities | (34) | 165 | ||||||
Cash flows from (used in) investing activities | 1,035 | (126) | ||||||
Net cash outflows | (815) | (738) | ||||||
Effect of exchange rate changes on cash | 41 | (176) | ||||||
Cash balance | $ | 5,380 | $ | 6,154 | ||||
Cash flows used in operating activities per share | ||||||||
- Before changes innon-cash working capital items | $ | (0.01) | $ | (0.01) | ||||
- After changes innon-cash working capital items | $ | (0.01) | $ | (0.00) |
During the year ended December 31, 2015, 1,670,000 options2019, the Company has allocated a net of $4.0 million into Government Investment Certificates (“GICs”) and Redeemable Short-Term Investment Certificates (“RSTICs”) which are included in its cash balance. All amounts are secured and redeemable within 1 year.
Cash flows after changes innon-cash working capital items in 2019 were granted134% higher than in 2018 due mainly to the receipt of payments associated with a fair valuean Administrative Services Agreement with Mason Resources which was terminated in 2018.
Cash flows (used in) from financing activities were immaterial in 2019 and 2018.
Cash flows from (used in) investing activities in 2019 were related to the proceeds from sale of $246,156, compared to 2,815,000 options that were granted with a fair valueinvestment in common shares of $251,390 during the year ended December 31, 2014 and 7,560,000 options that were granted with a fair value of $1,421,371 during the year ended December 31, 2013.
The Company earns interest income on its invested cash.
Loan Payable to $33.2 million) by paying $5.5 million in cash and issuing 5,128,604 Common Shares at a price of C$0.3496 per share. In the event of a partial expropriation of Entrée's economic interest, contractually or otherwise, in the Entrée/Oyu Tolgoi JV Property, the Amended Funding Agreement provides that the Company will not be required to make any further refund of the Deposit if Entrée's economic interest is reduced by up to and including 17%. If there is a reduction of greater than 17% up to and including 34%, the Amended Funding Agreement provides the Company with greater flexibility and optionality in terms of how the Company will refund a corresponding portion of the Deposit, including the option of not refunding cash. In the event of a full expropriation, the remainder of the Unearned Balance after the foregoing refund must be returned in cash with interest.
Under the terms of the Entrée/Oyu Tolgoi JV, EntréeJVA, the Company has elected to have OTLLC debt finance Entrée's share of costscontribute funds to approved joint venture programs and budgets on the Entrée/Oyu Tolgoi JV Property, with interest accruingCompany’s behalf, each such contribution to be treated as anon-recourse loan. Interest on each loan advance shall accrue at OTLLC'san annual rate equal to OTLLC’s actual cost of capital or the prime rate of the Royal Bank of Canada, plus 2%,two percent (2%) per annum, whichever is less, as at the date of the advance. As at December 31, 2015,The loan will be repayable by the total amount that OTLLC has contributedCompany monthly from ninety percent (90%) of the Company’s share of available cash flow from the Entrée/Oyu Tolgoi JV. In the absence of available cash flow, the loan will not be repayable. The loan is not expected to costs on the Company's behalf, including interest, was $6.8 million.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Exercise of stock options | 346,532 | $ | 41,135 | - | $ | - | ||||||||||
346,532 | $ | 41,135 | - | $ | - |
Capital Resources
Entrée had no commitments for capital assets at December 31, 2015.
At December 31, 2015,2019, Entrée had working capital of $21,844,252$5.5 million compared to $32,603,711$6.8 million as at December 31, 2014.
Share Capital
The Company’s authorized share capital consists of unlimited Common Shares without par value. At December 31, 2019, the Company had 175,470,074 Common Shares issued and outstanding.
Share options
As at December 31, 2019, the Company had 9,945,000 stock options outstanding and exercisable.
For the year ended December 31, 2019, the total share-based compensation charges relating to 2,290,000 options granted to officers, employees, directors and consultants was $0.3 million.
Share purchase warrants
At December 31, 2019, 9,264,735 Replacement Warrants were outstanding.
C. | Research and Development, Patents and Licenses, etc. |
None.
D. | Trend Information |
While the Company does not have any producing mines it is directly affected by trends in the metal industry. At the present time global metal prices are extremely volatile. Base metal prices and gold prices, driven by rising global demand, climbed dramatically and approached near historic highs several years ago. Prices have declined significantly since those highs.
Overall market prices for securities in the mineral resource sector and factors affecting such prices, including base metal prices, political trends in the countries in which such companies operate, and general economic conditions, may have an effect on the terms on which financing is available to the Company, if available at all.
Except as disclosed, the Company does not know of any trends, demand, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, its liquidity either materially increasing or decreasing at present or in the foreseeable future. Material increases or decreases in liquidity are substantially determined by the success or failureresults of exploration and development programs on the Company's exploration programs.
The Company'sCompany’s financial assets and liabilities generally consist of cash and cash equivalents, receivables, deposits, accounts payable and accrued liabilities, and loansloan payable, some of which are denominated in foreign currencies including United States dollars, Mongolian Tugriks and Australian dollars. The Company is at risk to financial gain or loss as a result of foreign exchange movements against the Canadian dollar. The Company does not currently have major commitments to acquire assets in foreign currencies, but historically it has incurred the majority of its exploration costs in foreign currencies.
E. | Off-balance Sheet Arrangements |
The Company has nooff-balance sheet arrangements except for the contractual obligation noted below.
F. | Tabular Disclosure of Contractual Obligations |
The following table lists, as at December 31, 2015,2019, in thousands of United States dollars, the Company'sCompany’s contractual obligations.
Less than 1 year | 1-3 Years | 3-5 years | More than 5 years | Total | |
Office lease | $247,906 | $71,578 | $Nil | $Nil | $319,484 |
Total | $247,906 | $71,578 | $Nil | $Nil | $319,484 |
Less than 1 year | 1-3 Years | 3-5 years | More than 5 years | Total | ||||||||||||||||
Office lease | $123 | $216 | $Nil | $Nil | $339 | |||||||||||||||
Total | $123 | $216 | $Nil | $Nil | $339 |
G. | Safe Harbor |
The Company seeks safe harbor for our forward-looking statements contained in Items 5.E and F. See the heading "Cautionary“Cautionary Note Regarding Forward-Looking Statements"Statements” above.
The following is a list of the Company'sCompany’s directors and executive officers. The directors were elected by the Company'sCompany’s shareholders on June 29, 2015May 22, 2019 and are elected for a term of one year, which term expires at the election of the directors at the next annual meeting of shareholders.
The Board adopted a majority voting policy in May 2013. If the number of shares
The Company'sCompany’s Board consists of six directors. The following is a brief account of the education and business experience of each director and executive officer, indicating each person'sperson’s principal occupation during the last five years.
Mark Bailey,Non-Executive Chair and Director,
Mr. Bailey has been a director of the Company since June 28, 2002.
Mr. Bailey is a mining executive and registered professional geologist with 39over 40 years of industry experience. He has served as the President and Chief Executive Officer of Core Gold Inc. since March 2019. Between 1995 and 2012, he was the President and Chief Executive Officer of Minefinders Corporation Ltd. ("Minefinders"(“Minefinders”), a precious metals mining company that operated the multi-million ounce Dolores gold and silver mine in Mexico before being acquired by Pan American Silver Corp. Before joining Minefinders, Mr. Bailey held senior positions with Equinox Resources Inc. and Exxon Minerals. Since 1984, Mr. Bailey has worked as a consulting geologist with Mark H. Bailey & Associates LLC. Mr. Bailey is currently thenon-executive Chairman of the Board of Fiore Gold Ltd. and was a director of Northern Lion Gold Corp.Mason Resources until its acquisition by Hudbay.
James Harris, Director, 68
Mr. Harris has been a director of the Company since January 29, 2003, served as the Company’sNon-Executive Chair between March 15, 2006 and Dynasty MetalsJune 27, 2013 and Mining Inc.
Mr. Harris was formerly a corporate, securities and business lawyer with over 30 years’ experience in Canada and internationally. He has extensive experience with the acquisition and disposition of assets, corporate structuring and restructuring, regulatory requirements and corporate filings, and corporate governance. Mr. Harris was also a Founding Member of the Legal Advisory Committee of the former Vancouver Stock Exchange. Mr. Harris has completed the Directors’ Education Program of the Institute of Corporate Directors and is an Institute accredited Director (ICD.D). Mr. Harris has also completed a graduate course in business at the London School of Economics. Mr. Harris was a director of Mason Resources until its acquisition by Hudbay.
Alan Edwards, Director,
Mr. Edwards has been a director of the Company since March 8, 2011.
Mr. Edwards has more than 3035 years of diverse mining industry experience. He is a graduate of the University of Arizona, where he obtained a Bachelor of Science Degree in Mining Engineering and an MBA (Finance). Mr. Edwards is currently the President of AE Consulting, a ColoradoResources Corp., an Arizona based company. Mr. Edwards is a director of Americas Gold and Silver Corporation and Orvana Minerals Corp. He served as the non-executive ChairmanNon-Executive Chair of the Board of Mason Resources until its acquisition by Hudbay. He also served as thenon-executive Chairman of Rise Gold Corp. from April 2017 to September 2018, AQM Copper Inc., from October 2011 to January 2017 and is a director of Americas Silver Corporation. He served as the non-executive Chairman of the Board of AuRico Gold Inc. (Alamos Gold Inc. following its combination with AuRico Gold in July 2015) from July 2013 to November 2015, and2015. Mr. Edwards served as the Chief Executive Officer of Oracle Mining Corporation, a Vancouver based company, from 2012 to 2013. He also previously served as President and Chief Executive Officer of Copper One Inc. from 2009 to 2011, as President and Chief Executive Officer of Frontera Copper Corporation, from 2007 to 2009, and as Executive Vice President and Chief Operating Officer of Apex Silver Mines Corporation, from 2004 to 2007, where he directed the engineering, construction and development of the San Cristobal project in Bolivia. Mr. Edwards has also worked for Kinross Gold Corporation, P.T. Freeport Indonesia, Cyprus Amax Minerals Company and Phelps Dodge Mining Company, where he started his career.
Anna Stylianides, Director,
Ms. Stylianides has been a director of the Company since July 13, 2015.
Ms. Stylianides has over 20 years of experience in global capital markets and has spent much of her career in investment banking, private equity, and corporate management and restructuring. She began her career in corporate law by joining the firm of Webber Wentzel Attorneys in 1990 after graduating from the University of the Witwatersrand in Johannesburg, South Africa. In 1992, she joined Investec Merchant Bank Limited where she specialized in risk management and gained extensive experience in the areas of corporate finance, structured finance, mergers and acquisitions, structuring, specialized finance and other banking and financial services transactions. She was also involved in designing and structuring of financial products for financial institutions and corporations.
Ms. Styliandes is currentlywas most recently the Executive Co-ChairmanChairman of Eco Oro Minerals Corp. (“Eco Oro”), a precious metals exploration and mining development company with a portfolio of projects in northeastern Colombia, and is currently a director of Eco Oro, Sabina Gold & Silver Corp., Capfin Partners, LLC, Altius Minerals Corporation and the Fraser Institute.
Michael Price, Director, 64
Dr. Price has been a director of the Company since February 5, 2018.
Dr. Price has over 35 years of experience in mining and mining finance. He is currently aNon-Executive Director of Eldorado Gold Corp. and Asanko Gold Inc. and is the London Representative of Resource Capital Funds. During his career, Dr. Price has served as Managing Director, Joint Global Head of Mining and Metals, Barclays Capital, Managing Director, Global Head of Mining and Metals, Societe Generale and Head of Resource Banking and Metals Trading, NM Rothschild and Sons. Dr. Price has B.Sc. and Ph.D. qualifications in Mining Engineering from University College Cardiff and he has a Mine Manager’s Certificate of Competency (South Africa).
Stephen Scott, InterimPresident, Chief Executive Officer
Mr. Scott was appointed to the position of Interim Chief FinancialExecutive Officer on November 16, 2015.
Mr. Scott has more than twenty fiveover 30 years of global experience in all mining industry sectors. Most recentlyBefore joining the Company, he was the President of Minenet Advisors, a capital markets and management advisory consultancy providing a broad range of advice and services to clients relating to planning and execution of capital markets transactions, strategic planning, generation and acquisition of projects, and business restructuring. Between 2000 and 2014, heMr. Scott held various global executive positions with Rio Tinto including General Manager Commercial, Rio Tinto Copper and currently servesPresident and Director of Rio Tinto Indonesia. He is an experienced public company director having served as an independent director on the board of directorsboards of a number of publicTSX and privateAIM listed public mining companies.
Duane Lo, Chief Financial Officer,
Mr. ColwillLo was appointed to the position of Interim Chief Financial Officer on April 1, 2016 and was appointed to the position of Chief Financial Officer on FebruaryNovember 1, 2011.
Mr. ColwillLo has over almost 20 years of experience with publicin accounting and private companies,financial management, the majority of which has been spent in a varietythe financing, management and administration of sectors including oilmining operations and gas, biotech, financial servicesdevelopment projects in Brazil, Africa and manufacturing. Most recently,other jurisdictions. Mr. Colwill served asLo was also the Chief Financial Officer of Transeuro Energy Corp., a public oilMason Resources until its acquisition by Hudbay. He was previously the Executive Vice President and gas company and acted as a financial consultant to private and public companies. Between 2001 and 2009, Mr. Colwill served as Chief Financial Officer of Neuromed PharmaceuticalsLuna Gold Corp. and Corporate Controller for First Quantum Minerals Ltd. Mr. Colwill began his career with KPMG, firstLo was also employed at Deloitte in Canadathe assurance and then in Poland. Mr. Colwill isadvisory practice. He holds a Chartered Professional Accountant, and a member of the Canadian Institute of Chartered Accountants andAccountant (CPA, CA) designation from the Institute of Chartered Accountants of British Columbia. Mr. Colwill holdsLo is currently a BBA from Simon Fraser University.
Susan McLeod, Vice President, Legal Affairs and Corporate Secretary,
Ms. McLeod joined the Company as Vice President, Legal Affairs on September 22, 2010 and was appointed Corporate Secretary on November 22, 2010.
Ms. McLeod was also the Chief Legal Officer and Corporate Secretary of Mason Resources until its acquisition by Hudbay. Prior to joining Entrée, Ms. McLeod was in private practise in Vancouver, Canada since 1997, most recently with Fasken Martineau DuMoulin LLP (from 2008 to 2010) and P. MacNeill Law Corporation (from 2003 to 2008). She has worked as outside counsel to public companies engaged in international mineral exploration and mining. She has advised clients with respect to corporate finance activities, mergers and acquisitions, corporate governance and continuous disclosure matters, and mining-related commercial agreements. Ms. McLeod holds a B.Sc. and an LLB from the University of British Columbia and is a member of the Law Society of British Columbia
Family Relationships
There are no family relationships between any directors or executive officers of the Company.
Arrangements
There are no known arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any of the Company'sCompany’s officers or directors was selected as an officer or director of the Company.
Conflicts of Interest
There are no existing or potential conflicts of interest among the Company, its directors, officers or promoters as a result of their outside business interests with the exception that certain of the Company'sCompany’s directors, officers and promoters serve as directors, officers and promoters of other companies, and, therefore, it is possible that a conflict may arise between their duties as a director, officer or promoter of the Company and their duties as a director or officer of such other companies.
The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any directors'directors’ and officers'officers’ conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the BCBCA, and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
The majority of the Company'sCompany’s directors are also directors, officers or shareholders of other companies that are engaged in the business of acquiring, developing and exploiting natural resource properties including properties in countries where the Company is conducting its operations. Such associations may give rise to conflicts of interest from time to time. Such a conflict poses the risk that the Company may enter into a transaction on terms which place the Company in a worse position than if no conflict existed. The directors of the Company are required by law to act honestly and in good faith with a view to the best interest of the Company and to disclose any interest which they may have in any project or opportunity of the Company. However, each director has a similar obligation to other companies for which such director serves as an officer or director. The Company has no specificCompany’s Code of Business Conduct and Ethics (the “Code of Ethics”) sets out the Company’s internal policy governing conflictsregarding the avoidance of interest.
B. | Compensation |
For the purposes of this Annual Report, "executive officer"“executive officer” of the Company means an individual who at any time during the year was the Chair, or a Vice-Chair or President of the Company; any Vice President in charge of a principal business unit, division or function including sales, finance or production; and any individual who performed a policy-making function in respect of the Company.
Set out below are particulars of compensation paid to the following persons (the "Named“Named Executive Officers"Officers” or "NEOs"“NEOs”):
1. | a chief executive officer |
2. | a chief financial officer |
3. | each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than C$150,000 for that financial year; and |
4. | any individual who would be a NEO under paragraph (3) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of that financial year. |
As at December 31, 2015,2019, the end of the most recently completed financial year of the Company, the Company had seventhree NEOs.
Compensation Discussion and Analysis
The Compensation Committee of the Board typically meets in the fall of each year to discuss and determine the recommendations that it will make to the Board regarding managementexecutive officer compensation. The general objectives of the Company'sCompany’s compensation strategy are to (a) compensate managementexecutive officers in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long-term shareholder value; (b) align management'smanagement’s interests with the long-term interests of shareholders; (c) provide a compensation package that is commensurate with other comparable mineral exploration companies to enable the Company to attract and retain talent; and (d) ensure that the total compensation package is designed in a manner that takes into account the constraintsfact that the Company is under by virtue of the fact that it is a junior mineral exploration company without a history of earnings, current market and industry circumstances and the Company'sCompany’s ability to raise capital.
In the course of its annual management compensation evaluation, the Compensation Committee considers, among such other factors as it may deem relevant, management'sthe CEO’s recommendations with respect to compensation of other executive officers, the extent to which corporate goals have been achieved, the Company'sCompany’s overall performance, the value of similar incentive awards to executive officers at comparable companies; awards given to managementexecutive officers in prior years, and general market conditions and economic outlook. General corporate goals for 2015 set by management and approved by the Board included resolving outstanding issues related to the Entrée/Oyu Tolgoi JV Property in Mongolia; increasing corporate development activities through evaluation of merger and acquisition opportunities as well as potential strategic investors for the Ann Mason Project; and implementing cost-cutting and cash preservation measures. Specific corporate targets were not defined.
The Compensation Committee generally considers three elements of compensation – a base salary for the next financial year, a discretionary cash bonus to reward superior performance and a grantan award of long-term incentive stock options. Base salary comprises the portion of executive compensation that is fixed, whereas discretionary cash bonuses and option basedoption-based compensation represent compensation that is "at risk"“at risk” depending on whether the executive officer is able to meet or exceed his or her applicable performance expectations, and overall performance of the Company. No specific formula has been developed to assign a specific weighting to each of these components. Rather, the Compensation Committee focuses on ensuring that the total compensation package for each NEOexecutive officer meets the general objectives of the Company'sCompany’s compensation strategy.
Base salary is used to provide the NEOsexecutive officers a set amount of money during the year with the expectation that each NEOexecutive officer will perform his or her responsibilities to the best of his or her ability and in the best interests of the Company. Generally, the Compensation Committee makes recommendations regarding each NEO'sexecutive officer’s base salary for the upcoming year after taking multiple factors into account, including the overall performance of the Company, general market performance and economic outlook, the performance of the NEO, the NEO's experience level and particular responsibilities and a review of base salaries paid to executive officers of comparable companies.
The grantingawarding of incentive stock options provides a link between managementexecutive officer compensation and the Company's Common ShareCompany’s share price. It also rewards management for achieving results that improve Company performance and thereby increase shareholder value. Stock options are generally awarded to executive officers at the commencement of employment and periodically thereafter. In making a determination as to whether a grantan award of long-term incentive stock options is appropriate, and if so, the number of options that should be granted,awarded, the Compensation Committee will consider:consider, among such other factors as it may deem relevant, the value in securities of the Company that the Compensation Committee intends to award as compensation;compensation, current and expected future performance of the NEO;executive officer, the potential dilution to shareholders and the cost to the Company;Company, previous grantsawards made to the NEO; option grants made to executive officers of comparable companies;officer and the limits imposed by the terms of the Company'sCompany’s Stock Option Plan (the "Plan"“Plan”) and the TSX. The Company considers the grantingawarding of incentive stock options to be a particularly important element of compensation as it allows the Company to encourage and reward each NEO'sexecutive officer’s efforts to increase value for shareholders without requiring the Company to use cash from its treasury. The terms and conditions of the Company'sCompany’s stock option grants,awards, including vesting provisions and exercise prices, are determined by the Board at the time of grant,award, subject to the limits imposed by the terms of the Plan.
Finally, the Compensation Committee will consider whether it is appropriate and in the best interests of the Company to award a discretionary cash bonus to the NEOsexecutive officers and if so, in what amount. A cash bonus may be awarded to reward extraordinary performance that has led to, among other achievements, strategic property acquisitions or divestitures, achieving corporate development or property exploration milestones, and capital raising efforts. Demonstrations of extraordinary personal commitment to the Company's interests, the community and the industry may also be rewarded through a cash bonus.
Administrative Services Agreement with Mason Resources
Effective May 9, 2017, the Compensation Committee receivedCompany entered into an Administrative Services Agreement with Mason Resources (the “Administrative Services Agreement”), pursuant to which the Company provided office space, furnishings and equipment, communications facilities and personnel necessary for Mason Resources to fulfill its basicday-to-day head office and executive responsibilities on a proposal from managementpro-rata cost-recovery basis. Mason Resources terminated the Administrative Services Agreement on December 19, 2018, concurrently with respect to NEO compensation for 2015. Management provided updated data from the peer group that LaneCaputo developed (excluding Lumina Copper Corp. and Oracle Mining Corp.) as well as Nevada Copper Corp., NGEx Resources Inc. and SilverCrest Mines Inc. Management's compensation proposal took noteclosing of the continuing haltacquisition of Mason Resources by Hudbay.
During the term of the Administrative Services Agreement, Mason Resources’ executive officers did not receive salaried compensation from Mason Resources. Instead Mason Resources had sufficient access to development at the Oyu Tolgoi underground mine in Mongolia, the continuing need to preserve capital and thus limit development of Ann Mason, and the Company's ongoing efforts to identify a beneficial merger and acquisition opportunity. Management's compensation proposal also took noteuse of the complexityCompany’s executive officers to enable Mason Resources to achieve its corporate goals and objectives. The Company was the sole employer and was responsible for paying 100% of executive officer salaries for services provided by executive officers to both the issues that management is dealing with,Company and Mason Resources. The Company then invoiced Mason Resources for its proportionate share of actual costs for the key milestonesexecutive officers, including base salary, benefits, vacation pay, perquisites, professional memberships and corporate objectives that had been met during 2014,continuing education expenses. The Company could also propose discretionary cash bonuses to be allocated between the Company and Mason Resources to reward exceptional service by executive officers to Mason Resources and the fact that NEO salaries have been kept to 2011 levels while some peer companies continue to provide salary increases to their executive officers.Company, taken as a whole.
2019 Compensation Committee evaluated the performance of the NEOs, taking into account the factors described above. The Compensation Committee accepted management's proposal, and recommended to the Board that the NEOs receive salary increases in the order of 3% effective January 1, 2015, but that no discretionary bonuses be awarded from the bonus pool. At the Board meeting held to consider, and ultimately approve, the Compensation Committee's recommendations, the Company's CEO, Gregory Crowe, voluntarily declined his salary increase.
In late 2015,December 2018, the Compensation Committee met to discuss NEOexecutive officer compensation for 2016. The Compensation Committee noted that management was in the process of implementing steps to significantly reduce overhead in 2016,2019 and determined that no salary increases or discretionary cash bonuses for NEOs should be recommended to the Board at thisthat time.
In connection with the appointment of Stephen Scott as Interim CEO in November 2015, the Company agreed to grant to Mr. Scott, as an inducement for his service, up to 500,000 Common Shares (the “Bonus Shares”). Under the terms of Mr. Scott’s employment agreement with the Company, as amended, the Bonus Shares were issuable at the discretion of the Board, based on the achievement of the Company’s strategic direction or the achievement of one or more fundamental transactions, provided the Bonus Shares would not be issued and Mr. Scott would have no entitlement to receive any of the Bonus Shares after December 31, 2018. The grant was made outside the Company’s existing shareholder approved equity incentive plans. The Company could, at its option, satisfy any obligation to issue Bonus Shares by making a cash payment to Mr. Scott equivalent to the then market price of the Bonus Shares. The Board authorized the issuance of 100,000 Bonus Shares to Mr. Scott effective May 5, 2017, immediately prior to completion of the Arrangement.
In December 2018, the Compensation Committee met to discuss executive officer compensation for 2019 and determined that no salary increases or discretionary cash bonuses should be recommended to the Board at that time. The Compensation Committee noted that no further Bonus Shares could be issued to Mr. Scott under the terms of his employment agreement with the Company, as amended. The Compensation Committee recommended to the Board that a cash bonus of up to C$200,000 be paid to Mr. Scott if the Company completes a fundamental transaction by December 31, 2019 or such later date as may be approved by the Board. The Board approved the Compensation Committee’s recommendation and also directed the Compensation Committee to establish a separate bonus pool from which discretionary cash bonuses may be allocated and distributed to other executive officers (excluding the CEO) if the Company completes a fundamental transaction by December 31, 2019 or such later date as may be approved by the Board. In September 2019, the Board approved a separate bonus pool for executive officers (excluding the CEO) of up to C$150,000. In December 2019, the Board extended the date by which a fundamental transaction must be completed to December 31, 2020.
In December 2019, the Compensation Committee met to discuss executive officer compensation for 2020 and recommended modest salary increases for Mr. Scott (5.23% increase to C$342,000 per annum), Mr. Lo (3.47% increase to C$155,200 per annum based on 65% full time equivalent (“FTE”)) and Ms. McLeod (5.15% increase to C$265,000 per annum) effective January 1, 2020. In determining that salary increases were appropriate, the Board noted that Ms. McLeod had not had a salary increase since January 1, 2015 and Mr. Scott and Mr. Lo had not had salary increases since they commenced employment in 2016. The Board also approved the Compensation Committee’s recommendation to award modest discretionary cash bonuses to the NEOs for their work in 2018 and 2019 as follows:
NEO | Discretionary Cash Bonus Paid to NEO in 2019 (C$) | |
Stephen Scott | $22,000 | |
Duane Lo | $11,000 (based on 65% FTE) | |
Susan McLeod | $17,000 |
Management has also annually proposed, and the Compensation Committee has recommended, option awards for directors, officers, employees and consultants of the Company, as a means of rewarding performance without depleting the Company’s treasury.
The Board can exercise discretion
to award compensation absent attainment of corporate goals or to reduce or increase the size of any award. The Board did not exercise this discretion inIn the course of conducting its annual review of compensation, the Compensation Committee considers the implications and risks associated with the Company'sCompany’s executive compensation policies, philosophy and practices. As discussed above, the Compensation Committee follows an overall compensation model which ensures that an adequate portion of overall compensation for the NEOsexecutive officers is "at risk"“at risk” and only realized through the performance of the Company over both the short-term and long-term. The Compensation Committee reviews the model to ensure that there are sufficient features to mitigate the incentive for excessive risk taking. Some of the key risk mitigating features include:
balanced design, between fixed and variable pay and between short-term and long-term incentives; and |
a greater reward opportunity derived from long-term incentives compared to short-term incentives, creating a greater focus on sustained performance over time. |
The Company does not permit its executive officers or directors to hedge any of the equity compensation granted to them.
Compensation Governance
The Compensation Committee is composed of James Harris (chair), Mark Bailey (chair), Gord Glenn, James Harris and Alan Edwards, all of whom are independent directors, applying the definition set out in section 1.4 of National Instrument52-110 –Audit Committees (“NI52-110”). ("NI 52-110") and under Section 803A of the NYSE MKT Company Guide. Each member of the Compensation Committee has served on various other public company boards, which gives them sufficient direct experience in executive compensation to assist them in making decisions about the suitability of the Company'sCompany’s compensation practices and policies. For a description of each committee member'smember’s experience, see "Item“Item 6. Directors, Senior Management and Employees – A. Directors and Senior Management"Management” above.
The Board has adopted a Compensation Committee Charter, which governs the organization of the Compensation Committee and sets out the duties and responsibilities of the chair and the Compensation Committee as a whole.
The primary objective of the Compensation Committee is to discharge the responsibilities of the Board relating to compensation and benefits of the executive officers and directors of the Company. The Committee shall consist of three or more directors appointed by the Board, each of whom must be independent. The Committee shall meet as many times as it deems necessary, but not less frequently than one time per year. The CEO may not be present during the Compensation Committee'sCommittee’s voting or deliberations.
Responsibilities of the Compensation Committee include:
Reviewing and approving on an annual basis corporate goals and objectives relevant to CEO compensation, evaluating the |
Reviewing and approving on an annual basis the adequacy and form of compensation and benefits of all other executive officers and directors, and making recommendations to the Board in that regard; |
Making recommendations to the Board with respect to the Plan and any other incentive compensation plans and equity-based plans; |
Determining the recipients of, and the nature and size of share compensation awards and bonuses granted from time to time, in compliance with applicable securities law, stock exchanges and other regulatory requirements; and |
Approving inducement grants, which include grants of options or stock to new employees in connection with a merger or acquisition, as well as anytax-qualified,non-discriminatory employee benefit plans or |
The Compensation Committee is acutely aware of the dual responsibility thatnon-executive directors have for overseeing the Company'sCompany’s corporate governance and long-term sustainability, as well as its compensation plans. In the course of determining compensation fornon-executive directors, the Compensation Committee tries to ensure thatnon-executive director interests are closely aligned with those of shareholders, and that best practices for corporate governance are observed in the course of structuringnon-executive director pay. In particular, the Compensation Committee is committed to structuring director pay in a manner that enables directors to maintain their independence. One of the ways that the Compensation Committee attempts to achieve this is by imposing reasonable limits on independent director participation in the Plan.
The Compensation Committee has the authority to retain outside advisors, including the sole authority to retain or terminate consultants to assist the Compensation Committee in the evaluation of compensation of senior managementexecutive officers and directors. In August 2013, the Compensation Committee retained LaneCaputo to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the Company's senior management team and independent directors and to recommend required changes (if any) to pay elements and strategy to align the Company with current market practices.
No compensation consultant or advisor has been retained by the Company, and no fees have been paid to a compensation consultant or advisor, in either of the Company'sCompany’s two most recently completed financial years.
Summary Compensation Table
The following table is a summary of compensation paid or granted to the NEOs for the last three financial years ending December 31, 2015, 20142019, 2018 and 2013.
Name and Principal Position |
Year |
Salary (US$)(3) | Share- (US$)(4) | Option- (US$) |
Non-equity incentive plan compensation (US$)(2) (3) |
Pension |
All other |
Total | ||||||||||||||||||||||
Annual |
Long- term | |||||||||||||||||||||||||||||
Stephen Scott,
President and
| 2019 | $250,231 | Nil | $76,495 | $16,939 | Nil | Nil | Nil | $343,665 | |||||||||||||||||||||
|
2018 |
|
|
$236,860(6)(7) |
|
Nil |
|
$109,387 |
|
|
$58,642(6) |
|
Nil |
Nil |
|
Nil |
|
|
$404,890(6) |
| ||||||||||
|
2017 |
|
|
$223,692(6) |
|
$45,094 |
|
$78,934 |
|
|
$79,890 |
|
Nil |
Nil |
|
Nil |
|
|
$427,610(6) |
| ||||||||||
Duane Lo,
CFO | 2019 | $115,491 | Nil | $38,248 | $8,469 | Nil | Nil | Nil | $162,208 | |||||||||||||||||||||
|
2018 |
|
|
$151,188(8)(9) |
|
Nil |
|
$54,694 |
|
|
$26,389(8) |
|
Nil |
Nil |
|
Nil |
|
|
$232,270(8) |
| ||||||||||
|
2017 |
|
|
$179,753(8) |
|
Nil |
|
$48,575 |
|
|
$25,565 |
|
Nil |
Nil |
|
Nil |
|
|
$253,893(8) |
| ||||||||||
Susan McLeod,
Vice President, Legal Affairs & Corporate Secretary | 2019 | $194,025 | Nil | $38,248 | $13,089 | Nil | Nil | Nil | $245,362 | |||||||||||||||||||||
|
2018 |
|
|
$184,724(10) |
|
Nil |
|
$54,694 |
|
|
$29,321(10) |
|
Nil |
Nil |
|
Nil |
|
|
$268,738(10) |
| ||||||||||
|
2017 |
|
|
$201,323(10) |
|
Nil |
|
$54,646 |
|
|
$28,760 |
|
Nil |
Nil |
|
Nil |
|
|
$284,729(10) |
|
(1) | The Company uses the Black-Scholes option-pricing model for determining fair value of stock options issued at the grant date. The Company selected the Black-Scholes option-pricing model because it is widely used in estimating |
(2) | The Company does not have a formal annual incentive program, however, bonuses are granted as determined by the Compensation Committee and approved by the Board on an individual basis. The Company does not presently have a pension incentive plan for any of its executive officers, including its NEOs. |
(3) |
All compensation is negotiated and settled in Canadian dollars. The exchange rate used to convert |
(4) | Mr. Scott received 100,000 Bonus Shares on May 5, 2017. The fair value of the share-based award at the grant date is calculated using the closing price of the Company’s Common Shares on the TSX on May 5, 2017. The grant date fair value amount is then converted to United States currency using the rate quoted by the Bank of Canada as its daily average exchange rate for May 5, 2017 (1.3749). |
(5) | Mr. |
(6) | Mr. Scott was |
(7) | Under his employment agreement with the Company, |
(8) | Mr. Lo was also the CFO of Mason Resources until its acquisition by Hudbay. The Company is Mr. Lo’s employer and was responsible for paying 100% of Mr. Lo’s salary for his services to |
(9) | Effective October 1, 2018, Mr. |
(10) | Ms. McLeod was also the Chief Legal Officer and Corporate Secretary of Mason Resources until its acquisition by Hudbay. The Company is Ms. McLeod’s employer and was responsible for paying 100% of Ms. McLeod’s salary for her services to both the Company and Mason Resources, which is reported in “Salary” above. Pursuant to the Administrative Services Agreement between the Company and Mason Resources, between May 9, 2017 (the effective date of the |
The following table provides the exchange rates used to convert the value of the option basedoption-based awards from Canadian dollars to United States dollars as reported above.
Name | Date of Grant | Expiry Date | Exercise Price (C$) | Options Granted | Exchange Rates to US$ |
Gregory Crowe | 23-Dec-14 | 22-Dec-19 | $0.21 | 300,000 | C$1.16/US$1 |
19-Dec-13 | 19-Dec-18 | $0.30 | 350,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 450,000 | C$1.02/US$1 | |
Stephen Scott | 16-Nov-15 | 15-Nov-20 | $0.35 | 500,000 | C$1.34/US$1 |
Bruce Colwill | 4-Dec-15 | 3-Dec-20 | $0.33 | 125,000 | C$1.34/US$1 |
23-Dec-14 | 22-Dec-19 | $0.21 | 250,000 | C$1.16/US$1 | |
19-Dec-13 | 19-Dec-18 | $0.30 | 200,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 375,000 | C$1.02/US$1 | |
Mona Forster | 23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 350,000 | C$1.02/US$1 | |
Robert Cann | 23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 325,000 | C$1.02/US$1 | |
Susan McLeod | 4-Dec-15 | 3-Dec-20 | $0.33 | 110,000 | C$1.34/US$1 |
23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 | |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 375,000 | C$1.02/US$1 | |
Robert Cinits | 4-Dec-15 | 3-Dec-20 | $0.33 | 110,000 | C$1.34/US$1 |
23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 | |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
9-Apr-13 | 9-Apr-18 | $0.32 | 50,000 | C$1.02/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 325,000 | C$1.02/US$1 |
Name | Date of Grant | Expiry Date | Exercise Price (C$) | Options Granted | Exchange Rates to US$ | |||||||||||||||
10-Dec-19 | 9-Dec-24 | $0.365 | 500,000 | C$1.30/US$1 | ||||||||||||||||
Stephen Scott | 19-Dec-18 | 18-Dec-23 | $0.55 | 500,000 | C$1.36/US$1 | |||||||||||||||
16-Oct-17 | 15-Oct-22 | $0.52 | 325,000 | C$1.25/US$1 | ||||||||||||||||
10-Dec-19 | 9-Dec-24 | $0.365 | 250,000 | C$1.30/US$1 | ||||||||||||||||
Duane Lo | 19-Dec-18 | 18-Dec-23 | $0.55 | 250,000 | C$1.36/US$1 | |||||||||||||||
16-Oct-17 | 15-Oct-22 | $0.52 | 200,000 | C$1.25/US$1 | ||||||||||||||||
10-Dec-19 | 9-Dec-24 | $0.365 | 250,000 | C$1.30/US$1 | ||||||||||||||||
Susan McLeod | 19-Dec-18 | 18-Dec-23 | $0.55 | 250,000 | C$1.36/US$1 | |||||||||||||||
16-Oct-17 | 15-Oct-22 | $0.52 | 225,000 | C$1.25/US$1 |
The Company employed Gregory Croweemploys Stephen Scott as President and CEO under an employment agreement dated NovemberApril 1, 2003,2016, as amended. The Company could terminate Mr. Crowe's employment at any time without cause by providing him with a lump sum payment equal to 24 months' salary and statutory entitlements. See "Termination and Change of Control Benefits" below.
The Company employs Duane Lo part-time as Chief Financial Officer under an employment agreement dated November 1, 2016, as amended. Mr. Lo is required to provide the Company with one month’s prior notice in the event he wishes to resign. The Company may terminate his employment without cause by providing him with six months’ working notice plus an additional month of working notice for each year of employment completed, to a maximum of twelve months’ working notice, or an amount equal to the salary Mr. Lo otherwise would receive over the working notice period (or a combination thereof). In the event Mr. Lo’s employment is terminated without cause or he resigns for Good Reason within the one year period following a Change of Control, Mr. Lo will be entitled to a lump sum amount equal to 18 months’ salary (calculated using his annualized salary based on full-time employment) and the aggregate amount of all other remuneration, bonuses and benefits that he would otherwise have received over the ensuing18-month period (collectively, the “Lo Severance Amount”). See “Item 6. Directors, Senior Management and Employees – B. Compensation – Termination and Change of Control Benefits” below.
The Company employs Susan McLeod as Vice President, Legal Affairs and Corporate Secretary under an employment agreement dated September 21, 2010, as amended. Ms. McLeod is required to provide the Company with one month'smonth’s prior notice in the event she wishes to resign. The Company may terminate her employment without cause by providing her with a lump sum amount equal to 18 months’ salary and the aggregate amount of all other remuneration, bonuses and benefits that she would otherwise have received over the ensuing18-month period (collectively, the “McLeod Severance Amount.Amount”). Ms. McLeod will be entitled to the Severance Amount in the event she elects to terminate her employment within 90 days following a changeChange of controlControl or as a result of conditions that amount to constructive dismissal. See "Termination“Item 6. Directors, Senior Management and Employees ��� B. Compensation – Termination and Change of Control Benefits"Benefits” below.
Incentive Plan Awards
The following table is a summary of all option-based awards and share-based awards to the NEOs that were outstanding at the end of the most recently completed financial year.
Option-based Awards | Share-based Awards | |||||||||||||||||
Name | Number of Securities (#) | Option exercise price (C$)(2) | Option expiration date | Value of (C$)(1) | Number of shares or units of shares that have not vested (#) | Market or payout (#) | ||||||||||||
500,000 | $0.30 | November 15, 2020 | $35,000 | Nil | Nil | |||||||||||||
400,000 | $0.36 | November 21, 2021 | $4,000 | Nil | Nil | |||||||||||||
Stephen Scott | 325,000 | $0.52 | October 15, 2022 | Nil | Nil | Nil | ||||||||||||
500,000 | $0.55 | December 18, 2023 | Nil | Nil | Nil | |||||||||||||
500,000 | $0.365 | December 9, 2024 | $2,500 | Nil | Nil | |||||||||||||
100,000 | $0.33 | March 31, 2021 | $4,000 | Nil | Nil | |||||||||||||
250,000 | $0.36 | November 21, 2021 | $2,500 | Nil | Nil | |||||||||||||
Duane Lo | 200,000 | $0.52 | October 15, 2022 | Nil | Nil | Nil | ||||||||||||
250,000 | $0.55 | December 18, 2023 | Nil | Nil | Nil | |||||||||||||
250,000 | $0.365 | December 9, 2024 | $1,250 | Nil | Nil | |||||||||||||
110,000 | $0.28 | December 3, 2020 | $9,900 | Nil | Nil | |||||||||||||
200,000 | $0.36 | November 21, 2021 | $2,000 | Nil | Nil | |||||||||||||
Susan McLeod | 225,000 | $0.52 | October 15, 2022 | Nil | Nil | Nil | ||||||||||||
250,000 | $0.55 | December 18, 2023 | Nil | Nil | Nil | |||||||||||||
250,000 | $0.365 | December 9, 2024 | $1,250 | Nil | Nil |
(1) | Calculated using the closing price of the Company’s Common Shares on the TSX on December 31, 2019 (being the last trading day of 2019) of C$0.37 and subtracting the exercise price ofin-the-money options. |
(2) | Post-Arrangement exercise prices. |
Option-based Awards | Share-based Awards | |||||
Name | Number of Securities underlying unexercised options (#) | Option exercise price (C$) | Option expiration date | Value of unexercised in-the-money options (C$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested (#) |
Gregory Crowe | 150,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
450,000 | $0.56 | February 11, 2017 | $0 | Nil | Nil | |
350,000 | $0.30 | February 11, 2017 | $0 | Nil | Nil | |
300,000 | $0.21 | February 11, 2017 | $24,000 | Nil | Nil | |
Stephen Scott | 500,000 | $0.35 | November 15, 2020 | $0 | Nil | Nil |
Bruce Colwill | 200,000 | $3.47 | January 4, 2016 | $0 | Nil | Nil |
100,000 | $2.23 | July 15, 2016 | $0 | Nil | Nil | |
125,000 | $1.25 | September 20, 2016 | $0 | Nil | Nil | |
375,000 | $0.56 | September 20, 2016 | $0 | Nil | Nil | |
200,000 | $0.30 | September 20, 2016 | $0 | Nil | Nil | |
250,000 | $0.21 | September 20, 2016 | $20,000 | Nil | Nil | |
Mona Forster | 125,000 | $1.25 | February 11, 2016 | $0 | Nil | Nil |
350,000 | $0.56 | February 11, 2016 | $0 | Nil | Nil | |
150,000 | $0.30 | February 11, 2016 | $0 | Nil | Nil | |
Robert Cann | 125,000 | $1.25 | September 28, 2016 | $0 | Nil | Nil |
325,000 | $0.56 | September 28, 2016 | $0 | Nil | Nil | |
150,000 | $0.30 | September 28, 2016 | $0 | Nil | Nil | |
225,000 | $0.21 | September 28, 2016 | $18,000 | Nil | Nil | |
Susan McLeod | 125,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
375,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil | |
150,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil | |
225,000 | $0.21 | December 22, 2019 | $18,000 | Nil | Nil | |
110,000 | $0.33 | December 3, 2020 | $0 | Nil | Nil | |
Robert Cinits | 150,000 | $2.05 | July 7, 2016 | $0 | Nil | Nil |
50,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil | |
325,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil | |
50,000 | $0.32 | April 9, 2018 | $0 | Nil | Nil | |
150,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil | |
225,000 | $0.21 | December 22, 2019 | $18,000 | Nil | Nil | |
110,000 | $0.33 | December 3, 2020 | $0 | Nil | Nil | |
(2) | Calculated using the closing price of the |
(3) | Post-Arrangement exercise prices. |
The following table is a summary of all value vested or earned during the most recently completed financial year for the directors of the Company (other than directors who are also NEOs).
Name(1) | Option-based awards – Value (US$)(2) | Share-based awards – Value (US$) | Non-equity incentive plan (US$) | |||
Mark Bailey | $0(3) | Nil | Nil | |||
James Harris | $0 | Nil | Nil | |||
Alan Edwards | $0(3) | Nil | Nil | |||
Anna Stylianides | $0(3) | Nil | Nil | |||
Michael Price | $0 | Nil | ||||
Nil |
(1) | In addition to being a director of the Company, |
(2) | Value vested during the year is calculated by subtracting the exercise price of the option (being no less than the market price of the |
(3) | 225,000 stock options were awarded on December |
(4) | 225,000 stock options were awarded on December |
100,000 stock options were awarded on |
The following table is a summary of options were exercised by directors during the most recently completed financial year.
Name | Options Exercised | Date Exercised | Exercise Price (C$) | |||
Mark Bailey | 100,000 | December 16, 2019 | $0.18 | |||
Alan Edwards | 100,000 | December 2, 2019 | $0.18 | |||
James Harris | 100,000 | December 12, 2019 | $0.18 |
Management Contracts
Management functions of the Company are substantially performed by directors or executive officers of the Company and not, to any substantial degree, by any other person with whom the Company has contracted.
C. | Board Practices |
The Board is currently comprised of six directors. The size and experience of the Board is important for providing the Company with effective governance in the mining industry. The Board'sBoard’s mandate and responsibilities can be effectively and efficiently administered at its current size. The Board has functioned, and is of the view that it can continue to function, independently of management as required. Directors are elected for a term of one year at the annual general meeting. The current directors were elected by the Company'sCompany’s shareholders at the Annual General Meeting held on June 29, 2015.
The Board adopted a majority voting policy in May 2013. If the number of shares
The Board has considered the relationship of each director to the Company and currently considers allfive of the six directors to be independent directors because they are independent of management and free from any interest and any business or other relationship which could reasonably be expected to interfere with the director'sdirector’s ability to act with a view to the best interest of the Company, other than interests and relationships arising solely from shareholdings. Stephen Scott is not independent by virtue of the fact that he is an executive officer of the Company.
Procedures are in place to allow the Board to function independently. At the present time, the Board has experienced directors that have made a significant contribution to the Company'sCompany’s success, and arethe Board is satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company. Committees meet independentindependently of management and other directors.
Disclosure of Corporate Governance Practices
National Instrument 58-101 - 58-101—Disclosure of Corporate Governance Practices(“NI58-101”)("NI 58-101") requires each reporting issuer to disclose its corporate governance practices on an annual basis. The Company'sCompany’s approach to corporate governance is set forth below.
Board of Directors
Section 1.4 of NI52-110 and NYSE MKT Company Guide Section 803A set sets out the standard for director independence. Under Section 1.4 of NI52-110, and NYSE MKT Company Guide Section 803A, a director is independent if he or she has no direct or indirect material relationship with the Company. A material relationship is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a director'sdirector’s independent judgment. Section 1.4 of NI52-110 and NYSE MKT Company Guide Section 803A also setsets out certain situations where a director will automatically be considered to have a material relationship with the Company.
As at December 31, 2015,2019 the Board was comprised of six directors. Applyingdirectors, five of whom are independent applying the definition set out in section 1.4 of NI 52-110 and NYSE MKT Company Guide Section 803A, all six members52-110. Stephen Scott is not independent by virtue of the Board (Lord Howard, James Harris, Mark Bailey, Anna Stylianides, Alan Edwards and Gorden Glenn) are independent.
To the extent that the Board considers it to be necessary or advisable, a Board meeting will include an in camerain-camera session, at which non-independentexecutive directors and members of management are not in attendance. Since the beginning of the Company'sCompany’s most recently completed financial year, there have been fivefour in camera sessions.
Mark Bailey, an independent director, serves as non-executive ChairmanNon-Executive Chair of the Board, and is responsible for ensuring that the Board discharges its responsibilities in an effective manner and that the Board understands the boundaries between Board and management responsibilities. The Board has developed a written position description for the ChairmanNon-Executive Chair of the Board in order to delineate the Chairman'shis or her role and responsibilities. The ChairmanNon-Executive Chair of the Board is primarily responsible for leadingacting as the effective leader of the Board in the performance of its duties and ensuring that the Board'sBoard’s agenda will enableenables it to successfully carry out its duties. As Chairman, Lord HowardTheNon-Executive Chair of the Board also serves as an "ex officio"“ex officio” member of each Board committee. More specifically, the ChairmanNon-Executive Chair of the Board is responsible for:
(a) | Ensuring the Board |
(b) | Ensuring that the |
(c) | Helping to set the tone and culture of |
Ensuring the distinct roles and responsibilities of the Board and management are well understood and respected by both the |
(ii) | Setting the tone for the Board to foster ethical and responsible decision-making, appropriate oversight of management and best practices in corporate governance; and |
(iii) | Fostering a spirit of respect, trust and collegiality among directors, and between the Board and management, where thoughtful, probative questions and thorough discussions are encouraged. |
(d) | Managing relationships by: |
(i) | Acting as a liaison between the Board and the CEO, and providing advice, counsel and mentorship to the CEO and to individual directors; |
(ii) | Serving as a key interface between directors; and |
(iii) | Engaging with shareholders, other stakeholders of the Company and the public where appropriate. |
(e) | Ensuring the adoption of, and compliance with, procedures so that the Board effectively carries out its responsibilities in compliance with the mandate of the Board and conducts its work efficiently and independently from management. |
Position Description for CEO
The Board has adopted a written position description for the CEO, which sets out his or her specific duties and responsibilities. Generally, the CEO, who must be appointed by the Board and is directly accountable to the Board, is responsible for management of the day to day operation of the business of the Company and has primary accountability for the profitability and growth of the Company.
Service Contracts with Directors
The Company does not have any service contracts with any directors.
Orientation and Continuing Education
Board turnover is relatively rare. As a result, the Board provides ad hoc orientation for new directors.
The CGNC is responsible for encouraging and facilitating continuing education programs for all directors. The CGNC will also ensure that each director understands the role of the Board, its committees and its directors, and the basic procedures and operations of the Board. Board members are also given access to management and other employees and advisors, who can answer any questions that may arise.
Ethical Business Conduct
The Board has adopted a written Code of Business Conduct and Ethics (the "Code") for its directors, officers, employees and consultants, a copy of which may be obtained on the Company’s website atwww.EntreeResourcesLtd.com, on SEDAR atwww.sedar.com and, or on EDGAR at www.sec.gov.
The CGNC is responsible for assisting the Board in dealing with conflict of interest issues as contemplated by the Code of Ethics, reviewing and updating the Code of Ethics periodically, ensuring that management has established a system to enforce the Code of Ethics and reviewing management'smanagement’s monitoring of the Company'sCompany’s compliance with the Code.
Under the Code of Ethics, members of the Board are required to disclose any conflict of interest or potential conflict of interest to the entire Board as well as any committee on which they serve. Directors are to excuse themselves from participation in any decision of the Board or a committee thereof in any matter in which there is a conflict of interest or potential conflict of interest. However, if the Board determines that a potential conflict of interest cannot be cured, the individual will be asked to resign from their position with the Company.
Directors are also required to comply with the relevant provisions of the BCBCA regarding conflicts of interest.
The Board is also committed to best practices in making timely and accurate disclosure of all material information and providing fair and equal access to material information. The Board has adopted a written Corporate Disclosure and Trading Policy to ensure that the Company and its directors, officers, employees and consultants satisfy the legal and ethical obligations related to the proper and effective disclosure of corporate information and the trading of securities with that information.
Standing Committees
The Board has four standing committees, namely the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating CommitteeCGNC and the Technical Committee. Their mandates and memberships are outlined below.
Audit Committee
The Audit Committee meets with the CEO and CFO of the Company and the independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls and procedures and the audit procedures and audit plans. The Audit Committee also recommends to the Board the auditors to be appointed, subject to shareholder approval. In addition, the Audit Committee reviews and recommends to the Board for approval the annual financial statements, the annual report and certain other documents required by regulatory authorities. The Audit Committee is composed of Gorden GlennAnna Stylianides (chair), Mark BaileyJames Harris and Anna Stylianides,Michael Price, all of whom are independent (as defined in NI 52-110 and NYSE MKT Company Guide Section 803(B)(2)(a)(i))52-110) and financially literate (as defined in NI 52-110 and NYSE MKT Company Guide Section 803(B)(2)(a)(iii))52-110). The Board has also assessed the qualifications of Mr. Glenn,Ms. Stylianides and has determined that Mr. Glenn is independent, financially literate andMs. Stylianides qualifies as a financial expert (as defined in Item 407(d)(5) of RegulationS-K under the U.S. Exchange Act) and is independent (as determined under U.S. Exchange Act Rule10A-3 and section 803A of the NYSE American Company Guide).
The Board has adopted a written position description for the chair of the Audit Committee. The chair is generally responsible for overseeing the Audit Committee in its responsibilities as outlined in the Audit Committee Charter. The chair'schair’s duties and responsibilities include presiding at each meeting of the Audit Committee, referring specific matters to the Board in the case of a deadlock on any matter or vote, receiving and responding to all requests for information from the Company or the independent auditors, leading the Audit Committee in discharging its tasks and reporting to the Board on the activities of the Audit Committee.
The Company'sCompany’s Annual Information Form for its financial year ended December 31, 20152019 dated March 30, 201613, 2020 (the "AIF"“AIF”), and submitted on Form6-K to the United States Securities and Exchange Commission on EDGAR, contains additional disclosure regarding the Audit Committee. Please refer to the section of the AIF entitled "Standing“Standing Committees of the Board"Board” for further information.
Compensation Committee
The primary objective of the Compensation Committee is to discharge the responsibilities of the Board relating to compensation and benefits of the executive officers and directors of the Company.
The Board has adopted a written position description for the chair of the Compensation Committee. The chair is generally responsible for overseeing the Compensation Committee in its responsibilities. The chair'schair’s duties and responsibilities include presiding at each meeting of the Compensation Committee, leading the Compensation Committee in discharging its tasks and reporting to the Board on the activities of the Compensation Committee.
The Compensation Committee is comprised of fourthree directors, each of whom, in the judgement of the Board, meets the independence requirements of NYSE MKT Company Guide Section 803A.is independent. The members of the Compensation Committee are: James Harris (chair), Mark Bailey (chair),and Alan Edwards.
Technical Committee
The members of the Technical Committee consist of Alan Edwards Gorden Glenn(chair), Mark Bailey, Michael Price and James Harris.
The primary objective of the Technical Committee is to review and make recommendations to the Board regarding the approval of budgets, exploration programs and other activities related to the Company’s mining properties. The Board has adopted a Technical Committee Charter, which provides that the Technical Committee must have at least three members, at least one of whom is independent, and all of whom are engineers or geoscientists, or otherwise have sufficient expertise to comprehend and evaluate technical issues associated with the Company’s mining properties. The Technical Committee must meet at least one time per year.
The Board has adopted a written position description for the chair of the Technical Committee, who should be independent. The chair is generally responsible for overseeing the Technical Committee in its responsibilities. The chair’s duties and responsibilities include presiding at each meeting of the Technical Committee, leading the Technical Committee in discharging its tasks and reporting to the Board on the activities of the Technical Committee.
Corporate Governance and Nominating Committee
The members of the CGNC are: James Harris (chair), Alan Edwards and Anna Stylianides.
The primary objective of the CGNC is to assist the Board in fulfilling its oversight responsibilities by: (a) developing and recommending to the Board corporate governance guidelines for the Company and making recommendations to the Board with respect to corporate governance guidelines; (b) reviewing the performance of the Board, Board members, Board committees and management; and (c) identifying individuals qualified to become Board and Board committee members and recommending such nominees to the Board for election or appointment. Pursuant to the written CGNC Charter, all members must have a working familiarity with corporate governance practices. The CGNC may form and delegate authority to subcommittees when appropriate and must meet not less frequently than one time per year.
The Board has adopted a written position description for the chair of the CGNC. The chair is generally responsible for overseeing the CGNC in its responsibilities. The chair'schair’s duties and responsibilities include ensuring the independence of the Board in the discharge of its responsibilities, presiding at each meeting of the CGNC, leading it in discharging its tasks and reporting to the Board on its activities.
Nomination of Directors
The CGNC examines the size and composition of the Board taking into consideration the benefits of all aspects of diversity, and recommends adjustments from time to time to ensure that the Board is of a size and composition that facilitates effective decision making.making, having due regard for the benefits of diversity. It also identifies and assesses the necessary and desirable competencies and characteristics for Board membership and regularly assesses the extent to which those competencies and characteristics are represented on the Board. The CGNC identifies individuals qualified to become members of the Board, having due regard for the benefits of Board diversity and the Company's Board Diversity Policy, actively seeks out such individuals when there is a vacancy or when so directed by the Board and makes recommendations to the Board for the appointment or election of director nominees and for membership on other committees of the Board.
Director Skills Matrix
In identifying and considering potential new candidates for the Board when vacancies arise and as part of the Company’s ongoing Board succession plan, and when evaluating directors, the CGNC has access to a skills matrix it has developed to identify and assess the Board’s skills. The director nominees have the skills and experience shown in the following matrix.
BOARD OF DIRECTORS EXPERTISE MATRIX | ||
Skill/Experience | Number of Directors (/6) | |
Public Company Board Experience Prior experience as a board member of a publicly listed company (other than Mason Resources) and knowledge of public company regulatory compliance. | 6 | |
Mining Industry Experience Knowledge of the mining industry, market and business imperatives, international regulatory environment and stakeholder management. | 6 | |
Mergers & Acquisitions Experience in mergers and acquisitions. | 6 | |
Mining Finance Experience in finance for the mining industry. | 6 | |
Joint Ventures Experience negotiating and operating in a joint venture environment. | 5 | |
International Experience Experience working in an organization that has business in one or more developing nations. | 6 | |
Dealing with Governments Experience in, or a good understanding of, the workings of governments and public policy domestically and internationally. | 6 | |
Executive Experience Experience working as a senior officer of a publicly listed company or major organization. | 5 | |
Legal Experience on legal matters with a publicly listed company or major organization including drafting and negotiating contracts, conducting financings, dealing with regulatory bodies on securities, corporate or other regulatory matters. | 2 | |
Corporate Governance Knowledge of good corporate governance practices and policies and experience in implementing them. | 6 | |
Financial Literacy The ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues faced by the Company, or experience in financial accounting and reporting and corporate finance (familiarity with internal financial controls, Canadian or U.S. GAAP and/or IFRS). | 6 | |
Risk Management Experience in overseeing policies and processes to identify a resource company’s principal business risks and to confirm that appropriate systems are in place to mitigate these risks. | 5 | |
Royalty Company Experience Experience working inside or on the board of a royalty company. | 1 | |
U.S. Compliance Knowledge of U.S. compliance issues. | 5 | |
Business Judgment Track record of leveraging own experience and wisdom in making sound strategic and operational business decisions, demonstrates business acumen and a mindset for risk oversight. | 5 | |
Corporate Responsibility and Sustainable Development Understanding and experience with corporate responsibility practices and the constituents involved in sustainable development policies. | 6 | |
Media Relations Experience in dealing with the media on matters relating to operations and public relations issues. | 4 | |
Human Resources Prior or current experience in executive compensation and the oversight of succession planning, talent planning and retention programs. | 5 |
Representation of Women on the Board and in Executive Officer Positions
On May 25, 2015, the Company adopted a Board Diversity Policy, which confirms the Company’s commitment to achieving and maintaining diversity on the Board, with a specific emphasis on gender diversity. The Company recognizes and embraces the benefits of having a diverse Board that may draw on a variety of perspectives, skills, experience and expertise to facilitate effective decision making. The Company also views diversity at the Board level as an important element in strong corporate governance.
The Company recognizes that gender diversity is a significant aspect of diversity and acknowledges the important role that women with appropriate and relevant skills and experience can play in contributing to the diversity of perspective on the Board. However, the Board Diversity Policy does not specifically call for the identification and nomination of women directors. Candidates will be recommended for appointment or election as directors based on merit considered against objective criteria, having due regard for the benefits of diversity. The Company believes other aspects of diversity must also be considered, including skills, experience, education, age, ethnicity, and geographical and cultural background, to ensure that the Board, as a whole, reflects a range of viewpoints, background, skills, experience and expertise.
New members of the Board are nominated, or recommended for the Board’s selection, by the CGNC. In fulfilling its responsibilities to identify individuals qualified to become members of the Board, the CGNC will consider (i) the independence of each nominee; (ii) the experience and background of each nominee; (iii) having a balance of skills for the Board and its committees to meet their respective mandates; (iv) the benefits of diversity andon the Company'sBoard, including gender diversity, as outlined in the Company’s Board Diversity Policy.
The Company does not consider the level of women in executive officer positions when making executive officer appointments, and no fixed targets or quotas relating to the representation of women in executive officer positions have been adopted. The Board will consider candidates who have been selected based on the primary considerations of experience, skills, ability, education and compatibility with the Company’s corporate vision, values and principles, including the Company’s commitment to diversity. One of the Company’s three executive officers, namely the Vice President, Legal Affairs and Corporate Secretary, is a woman (33%).
Board Assessment and Renewal
The Board undertakes a robust annual assessment process assessingthat includes director reviews conducted through completion of an annual assessment questionnaire regarding the performance and effectiveness of the Board, each committee and each director, andone-on-one conversations between theNon-Executive Chair of the Board and the chair of the CGNC. TheNon-Executive Chair of the Board committeeswill have informal discussions with directors on a selective basis, as required, to fully understand any concerns raised or recommendations advanced in the assessment process, before reporting to and leading a whole,discussion among the full Board. Based on the results of the questionnaire and the skills matrix identified above, the CGNC may recommend adjustments from time to time to ensure necessary and desirable competencies and characteristics are represented on the Board and the Board is of a size and composition that facilitates effective decision making.
The Company has not adopted a mandatory retirement age for directors or imposed any restrictions on a director’s ability to stand forre-election. The Company is of the opinion that imposing such restrictions could put the Company at risk of losing longer serving directors who have anin-depth knowledge and understanding of the Company and its business. This loss of knowledge and understanding would not necessarily be in the best interests of the Company or its shareholders. However, to balance the benefits of experience with the need for new perspective, the Board Diversity Policy provides that periodically, but at least once every three years, the Board will consider the need for and, if deemed necessary, implement a renewal program intended to achieve what the Board believes to be a desirable balance of skills, experience, expertise, gender, age and other diversity criteria. In considering and identifying new directors for nomination, the CGNC will meet to identify the particular reference toskills needed of new recruits. Among other things, the MandateCGNC uses the skills matrix identified above and the results of the assessment questionnaire and, together with input from theNon-Executive Chair of the Board and, if appropriate, committee charters, where applicable. Itthe CEO, determines the necessary attributes and experience required of a new member which would represent the best fit for the Board and future needs of the Company. Once a list of key attributes, skills and competencies for a potential new director is required to report annuallyidentified, the CGNC then creates a list of possible candidates for consideration and evaluation, which are then presented to the full Board on such assessments.
D. | Employees |
At December 31, 2015, we2019, Entrée had 18 full timefive full-time and two part-time employees working for us in Canada, Mongolia and the United States (2014 – 35 full time and 6 temporary; 2013 – 34 full time)). As at March 30, 2016, we had 13 full time employees working for us, of which seven are based in Vancouver, four areBritish Columbia and Ulaanbaatar, Mongolia (2018 – seven full-time and one part-time employees; 2017 – eight full-time employees). Entrée also had two part-time consultants based in the United States and two are based in Ulaanbaatar, Mongolia.
None of ourEntrée’s employees belong to a union or are subject to a collective agreement. We consider our employeeEmployee relations are considered to be good.
E. | Share Ownership |
The table below sets out the municipality of residence and securities held by directors and executive officers as at March 30, 2016.
Name and municipality of residence | No. of Common Shares beneficially owned, directly or indirectly, or controlled(1). | No. of securities held on a fully-diluted basis | |||||
Mark Bailey(2) Arizona U.S.A. | 392,922 | Shares: | 392,922 | ||||
Warrants: | 0 | ||||||
Stock options: | 580,000 | ||||||
Total: | 972,922 | ||||||
James Harris(3) British Columbia Canada | 443,062 | Shares: | 443,062 | ||||
Warrants: | 0 | ||||||
Stock options: | 680,000 | ||||||
Total: | 1,123,062 | ||||||
Rt. Honourable Lord Howard of Lympne London, UK | 128,800 | Shares: | 128,800 | ||||
Warrants: | 0 | ||||||
Stock options: | 780,000 | ||||||
Total: | 908,800 | ||||||
Alan Edwards(4) Arizona U.S.A | 158,000 | Shares: | 158,000 | ||||
Warrants | 0 | ||||||
Stock options | 580,000 | ||||||
Total(5): | 738,000 | ||||||
Gorden Glenn(5) Ontario Canada | 0 | Shares: | 0 | ||||
Warrants | 0 | ||||||
Stock options | 605,000 | ||||||
Total: | 605,000 | ||||||
Anna Stylianides(6) California U.S.A. | 0 | Shares: | 0 | ||||
Warrants | 0 | ||||||
Stock options | 175,000 | ||||||
Total: | 175,000 | ||||||
Stephen Scott British Columbia Canada | 0 | Shares: | 0 | ||||
Warrants | 0 | ||||||
Stock options | 500,000 | ||||||
Total: | 500,000 | ||||||
Bruce Colwill(7) British Columbia Canada | 25,700 | Shares: | 25,700 | ||||
Warrants | 0 | ||||||
Stock options | 1,175,000 | ||||||
Total(8): | 1,200,700 | ||||||
Robert Cinits British Columbia Canada | 0 | Shares: | 0 | ||||
Warrants: | 0 | ||||||
Stock Options: | 1,060,000 | ||||||
Total: | 1,060,000 | ||||||
Susan McLeod British Columbia Canada | 9,500 | Shares: | 9,500 | ||||
Warrants: | 0 | ||||||
Stock options: | 985,000 | ||||||
Total: | 994,500 |
Name and municipality of residence | No. of Common Shares beneficially owned, directly or indirectly, or controlled(1). | No. of securities held on a fully- diluted basis | ||||||||
Mark Bailey(2) Arizona U.S.A. | 749,993 | Common Shares: Replacement Warrants: Stock options: Total: | 749,993 50,000 950,000 1,749,993 | |||||||
James Harris(3) British Columbia Canada | 1,053,062 | Common Shares: Replacement Warrants: Stock options: Total: | 1,053,062 67,500 925,000 2,045,562 | |||||||
Michael Price London, UK(4) | Nil | Common Shares: Replacement Warrants: Stock options: Total: | Nil Nil 525,000 525,000 | |||||||
Alan Edwards(5) Arizona U.S.A | 632,783 | Common Shares: Replacement Warrants: Stock options: Total: | 632,783 60,975 850,000 1,543,758 | |||||||
Anna Stylianides(6) British Columbia Canada | 73,171 | Common Shares: Replacement Warrants: Stock options: Total: | 73,171 36,585 950,000 1,059,756 | |||||||
Stephen Scott(7) British Columbia Canada | 442,561 | Common Shares: Replacement Warrants: Stock options: Total: | 442,561 48,780 2,225,000 2,716,341 | |||||||
Duane Lo British Columbia Canada | 726,300 | Common Shares: Replacement Warrants: Stock options: Total: | 726,300 122,000 1,050,000 1,898,300 | |||||||
Susan McLeod British Columbia Canada | 712,097 | Common Shares: Replacement Warrants: Stock options: Total: | 712,097 61,000 1,035,000 1,808,097 |
(1) | Meaning an officer of the issuer, or a director or senior officer that has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control or direction over securities of the issuer carrying more than 10% of the voting rights attached to all the |
(2) | Member of the Compensation Committee and Technical Committee. |
(3) | Member of the CGNC (chair), Audit Committee and |
Member of the |
Member of the Technical Committee (chair), CGNC and Compensation |
Member of the Audit Committee (chair) |
Member of the |
To the best of the Company'sCompany’s knowledge as at December 31, 2015,2019 and March 13, 2020, directors and executive officers, as a group, beneficially owned, or controlled or directed, directly or indirectly, 1,107,9844,389,967 Common Shares (not including Common Shares issuable upon exercise of Replacement Warrants or stock options) representing 0.75%2.5% of the then outstanding Common Shares.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets out information as of the end of the Company'sCompany’s most recently completed financial year with respect to compensation plans under which equity securities of the Company are authorized for issuance.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (C$) (b) | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a)) (c) (1) |
Equity compensation plans approved by securityholders | 13,208,000 | $0.60 | 1,525,091 |
Equity compensation plans not approved by securityholders | 500,000(2) | N/A | Nil |
Total | 13,708,000 | $0.60 | 1,525,091 |
Plan Category | Number of securities to be issued upon exercise of and rights
(a) | Weighted-average exercise (C$)
(b) | Number of securities compensation plans (excluding securities reflected in column (a)) (c) (1) | |||||||||
Equity compensation plans approved by securityholders |
|
9,945,000 |
|
|
$0.43 |
|
|
9,945,000 |
| |||
Equity compensation plans not approved by securityholders |
|
Nil |
|
|
N/A |
|
|
Nil |
| |||
Total | 9,945,000 | $0.43 | 9,945,000 |
(1) | The maximum aggregate number of Common Shares issuable pursuant to options |
As far as it is known to the Company, other than identified below, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.
To the knowledge of the Company'sCompany’s directors and senior officers, the following table sets forth certain information as at March 30, 2016,13, 2020, concerning the ownership of the Company'sCompany’s Common Shares as to each person known by the directors and senior officers, based solely upon public records and filings, to be the direct or indirect owner of more than five percent (5%) of the Company'sCompany’s Common Shares, who owned more than five percent of the outstanding shares of each class of the Company'sCompany’s voting securities.
Shareholder Name | Number of Shares | Percentage of Issued Shares |
Rio Tinto International Holdings Limited | 30,366,129(1) | 19.90% |
Sandstorm Gold Ltd. | 22,985,746 | 15.10% |
Caisse de depot et placement du Quebec | 12,381,400 | 8.10% |
Shareholder Name | Number of Shares | Percentage of Issued Shares | ||
Rio Tinto International Holdings Limited | 30,366,129(1) | 17.4% | ||
Sandstorm Gold Ltd. | 37,136,880 (2) | 21.2% |
(1) | Rio Tinto International Holdings Limited holds 16,566,796 Common Shares directly. It also has a beneficial interest in 13,799,333 |
(2) | Sandstorm also owns 457,317 Replacement Warrants. |
Changes in ownership by major shareholders
To the best of the Company'sCompany’s knowledge there have been no changes in the ownership of the Company'sCompany’s shares held by major shareholders during the last three fiscal years other than as disclosed herein.
On March 1, 2016, the Company issued 5,128,604 Common Shares to Sandstorm at a price of C$0.3496 per shareCommon Share pursuant to the Agreement to Amend.Amend described under “Item 4. Information on the Company – B. Business Overview – Sandstorm – Amended and Restated Equity Participation and Funding Agreement” above. The price was calculated using the volume weighted average priceVWAP of the Company'sCompany’s Common Shares on the TSX for the 15 trading days preceding February 23, 2016, the effective date of the Agreement to Amend. Following closing, Sandstorm holdsheld 22,985,746 Common Shares or approximately 15.1% of the then issued and outstanding Common Shares of the Company.
On January 11, 2017, Sandstorm acquired 914,634 units of the Company at a price of C$0.41 per unit as part of the largerNon-Brokered Private Placement. See “Item 4. Information on the Company – B. Business Overview –Non-Brokered Private Placement” above. Following closing, Sandstorm held 23,900,380 Common Shares or approximately 13.8% of the then issued and outstanding Common Shares of the Company.
In the year ended December 31, 2018, Sandstorm made market purchases through the facilities of the TSX increasing its ownership from 23,900,380 Common Shares to 28,559,880 Common Shares of the Company, or approximately 16.3% of the outstanding Common Shares of the Company.
In the year ended December 31, 2019, Sandstorm made market purchases through the facilities of the TSX increasing its ownership from 28,559,880 Common Shares to 36,138,880 Common Shares of the Company, or approximately 20.6% of the outstanding Common Shares of the Company as at December 31, 2019.
As at March 13, 2020, Sandstorm holds 37,136,880 Common Shares (approximately 21.2% of the outstanding Common Shares of the Company) and Replacement Warrants to purchase an additional 457,317 Common Shares.
Voting Rights
The Company'sCompany’s major shareholders do not have different voting rights.
Shares Held in the United States
As of March 30, 2016,10, 2020, there were approximately 2223 registered holders of the Company'sCompany’s Common Shares in the United States, with combined holdings of 22,209,37841,425,735 Common Shares.
Change of Control
As of the date of this Annual Report, there were no arrangements known to the Company which may, at a subsequent date, result in a change of control of the Company.
Control by Others
To the best of the Company'sCompany’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.
B. | Related Party Transactions |
The Company did not enterentered into anyno transactions with related parties during the fiscal year ended on December 31, 2019 and has not entered into a transaction with a related party from January 1, 2020 up to the date of this Annual Report.
Directors and Key Management Personnel
The Company’s related parties include its wholly owned subsidiaries and key management personnel. Direct remuneration paid to the Company’s directors and key management personnel during the years ended December 31, 2015.2019 and 2018 are as follows:
2019 | 2018 | |||||||
Directors fees | $ | 132 |
| $ | 142 |
| ||
Salaries and benefits | $ | 588 |
| $ | 1,143 |
| ||
Share-based compensation | $ | 321 |
| $ | 461 |
|
As of December 31, 2014.
Upon a pricechange of C$0.3496 per share. The price was calculated using the volume weighted average price of the Company's Common Shares on the TSX for the 15 trading days preceding February 23, 2016, the effective date of the Agreement to Amend. Following closing, Sandstorm holds 22,985,746 Common Shares, or 15.07% of the outstanding Common Shares of the Company.
C. | Interests of Experts and Counsel |
Not Applicable.
The following financial statements of the Company are attached to this Annual Report:
Independent |
Consolidated Statements of |
● | Consolidated Statements of Comprehensive Loss for the years ended December 31, |
Consolidated Statement of |
Consolidated Statements of Cash Flows for the years ended December 31, |
Notes to Consolidated Financial Statements for the |
Legal Proceedings
None.
Dividend Policy
The Company has not declared any dividends on its Common Shares since its inception on July 19, 1995. There is no restriction in the Company'sCompany’s Articles that will limit its ability to pay dividends on its Common Shares. However, the Company does not anticipate declaring and paying dividends to its shareholders in the near future.
B. | Significant Changes |
None.
The Company'sCompany’s Common Shares were traded on the TSX Venture Exchange until April 24, 2006. On April 24, 2006 the Company began trading on the TSX. The Company'sCompany is traded on the TSX under the symbol is "ETG"“ETG”. The Company’s Common Shares also traded on the NYSE American LLC under the symbol “EGI” until September 30, 2019. Effective October 1, 2019, the Company voluntarily withdrew its Common Shares from listing on NYSE American LLC and its CUSIP number is 29383-100. The Company's Common Shares commenced trading on the OTCQB under the symbol “ERLFF”.
B. | Plan of Distribution |
Not Applicable.
C. | Markets |
The Company’s outstanding Common Shares are listed on the TSX and are also traded on the NYSE MKT under the symbol "EGI" and on the Frankfurt Stock Exchange under the symbol "EKA" (WKN:121411).
TSX | NYSE MKT | ||||
(Canadian Dollars) | (United States Dollars) | ||||
Last Five Fiscal Years | High | Low | High | Low | |
2015 | 0.66 | 0.18 | 0.51 | 0.08 | |
2014 | 0.52 | 0.18 | 0.47 | 0.16 | |
2013 | 0.62 | 0.25 | 0.62 | 0.22 | |
2012 | 1.41 | 0.39 | 1.41 | 0.40 | |
2011 | 3.40 | 1.05 | 3.52 | 1.00 |
2015 | High | Low | High | Low |
Fourth Quarter ended December 31, 2015 | 0.44 | 0.27 | 0.37 | 0.20 |
Third Quarter ended September 31, 2015 | 0.42 | 0.29 | 0.40 | 0.22 |
Second Quarter ended June 30, 2015 | 0.66 | 0.20 | 0.51 | 0.15 |
First Quarter ended March 31, 2015 | 0.26 | 0.18 | 0.21 | 0.08 |
2014 | High | Low | High | Low |
Fourth Quarter ended December 31, 2014 | 0.31 | 0.18 | 0.26 | 0.16 |
Third Quarter ended September 31, 2014 | 0.35 | 0.27 | 0.34 | 0.25 |
Second Quarter ended June 30, 2014 | 0.43 | 0.31 | 0.39 | 0.28 |
First Quarter ended March 31, 2014 | 0.52 | 0.32 | 0.47 | 0.30 |
Last Six Months | High | Low | High | Low |
Feb-16 | 0.43 | 0.27 | 0.32 | 0.18 |
Jan-16 | 0.34 | 0.25 | 0.24 | 0.17 |
Dec-15 | 0.34 | 0.28 | 0.26 | 0.20 |
Nov-15 | 0.38 | 0.31 | 0.28 | 0.24 |
Oct-15 | 0.44 | 0.32 | 0.37 | 0.24 |
Sep-15 | 0.53 | 0.29 | 0.40 | 0.22 |
Number of Options | Exercise Price (CDN$) | Grant Date | ||
100,000 | $0.38 | July 13, 2015 | ||
500,000 | $0.35 | November 16, 2015 | ||
1,070,000 | $0.33 | December 4, 2015 |
D. | Selling Shareholders |
Not Applicable.
E. | Dilution |
Not Applicable.
F. | Expenses of the Issue |
Not Applicable.
Not Applicable.
B. | Memorandum and Articles of Association |
The Company is continued under the laws of British Columbia and is governed by the BCBCA.
The Company’s Articles do not address the Company'sCompany’s objects and purposes and there are no restrictions on the business the Company may carry on in the Articles.
The Company is authorized to issue an unlimited number of Common Shares without par value. Each Common Share is entitled to one vote. All Common Shares of the Company rank equally as to dividends, voting power and participation in assets. No Common Shares have been issued subject to call or assessment. There are nopre-emptive or conversion rights and no provision for exchange, exercise, redemption and retraction, purchase for cancellation, surrender or sinking or purchase funds. Provisions as to modification, amendments or variation of such rights or such provisions are contained in the BCBCA and the Company'sCompany’s Articles.
A director or senior officer who has, directly or indirectly, a material interest in an existing or proposed material contract or transaction of the Company may not vote in respect of any such proposed material contract or transaction.
The directors may from time to time in their discretion authorize and cause the Company to:
(a) | borrow money in such amount, in such manner, on such security, from such sources and upon such terms and conditions as they think fit; |
(b) | guarantee the repayment of money borrowed by any person or the performance of any obligation of any person; |
(c) | issue bonds, debentures, notes and other debt obligations either outright or as continuing security for any indebtedness or liability, direct or indirect, or obligation of the Company or of any other person; and |
(d) | mortgage, charge (whether by way of a specific or floating charge), grant a security interest in or give other security on the undertaking or on the whole or any part of the property and assets of the Company, both present and future. |
There are no age considerations pertaining to the retirement ornon-retirement of directors.
A director is not required to hold a share in the capital of the Company as qualification for his office but shall be qualified as required by the BCBCA, to become or act as a director.
A director may hold any office or appointment with the Company (except as auditor of the Company) in conjunction with his office of director for such period and on such terms (as to remuneration or otherwise) as the Board may determine. The Company must reimburse each director for the reasonable expenses that he may incur in and about the business of the Company. If a director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Company'sCompany’s business, he may be paid remuneration to be fixed by the Board, or, at the option of such director, by ordinary resolution, and such remuneration may be either in addition to or in substitution for any other remuneration that he may be entitled to receive.
Subject to the provisions of the BCBCA, the Company may indemnify any person. The Company must, subject to the provisions of the BCBCA, indemnify a director, officer or alternate director or a former director, officer or alternate director of the Company or a person who, at the request of the Company, is or was a director, alternate director or officer of another corporation, at a time when the corporation is or was an affiliate of the Company or a person who, at the request of the Company, is or was, or holds or held a position equivalent to that of, a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity (in each case, an "eligible party"“eligible party”), and the heirs and personal representatives of any such eligible party, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action (whether current, threatened, pending or completed) in which such eligible party or any of the heirs and personal representatives of such eligible party, by reason of such eligible party being or having been a director, alternate director or officer or holding or having held a position equivalent to that of a director, alternate director or officer, is or may be joined as a party or is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to the proceeding.
All of the authorized Common Shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of Common Shares are entitled to one vote for each Common Share held of record on all matters to be acted upon by the shareholders. Holders of Common Shares are entitled to receive such dividends as may be declared from time to time by the Board, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of Common Shares are entitled to receive pro rata the assets of the Company, if any, remaining after payments of all debts and liabilities. No Common Shares have been issued subject to call or assessment. There are nopre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the BCBCA and the Articles. Unless the BCBCA or the Company'sCompany’s Articles otherwise provide, any action to be taken by a resolution of the shareholders may be taken by an ordinary resolution or by a vote of a majority or more of the shares represented at the shareholders'shareholders’ meeting.
The BCBCA contains provisions which require a "special resolution"“special resolution” for effecting certain corporate actions. Such a "special resolution"“special resolution” requires atwo-thirds vote of shareholders rather than a simple majority for passage. The principle corporate actions that require a "special resolution"“special resolution” include:
a. | transferring the |
b. | giving financial assistance under certain circumstances; |
c. | certain conflicts of interest by directors; |
d. | disposing of all or substantially all of the |
e. | certain alterations of share capital; |
f. | altering any restrictions on the |
g. | certain reorganizations of the Company. |
There are no restrictions on the repurchase or redemption of Common Shares of the Company while there is any arrearage in the payment of dividends or sinking fund installments.
There is no liability to further capital calls by the Company.
There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of Common Shares.
No right or special right attached to issued shares may be prejudiced or interfered with unless the shareholders holding shares of the class or series of shares to which the right or special right is attached consent by a separate special resolution of those shareholders.
There are no limitations on the rights to own securities.
There is no provision of the Company'sCompany’s Articles that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
Shareholder ownership must be disclosed to Canadian securities administrators and the TSX by any shareholder who owns more than 10% of the Company'sCompany’s outstanding Common Shares.
C. | Material Contracts |
The Company has the following material contracts:
1. | Arrangement Agreement dated February 28, 2017 between Entrée Gold Inc. and Mason Resources Corp. |
See “Item 4. Information on the Company – B. Business Overview – Arrangement” above.
2. | Amended and Restated Equity Participation and Funding Agreement dated February 14, 2013 and amended March 1, 2016 between Entrée Gold Inc. and Sandstorm Gold Ltd. |
See "Item“Item 4. Information on the Company – B. Business Overview – Agreements with Sandstorm – Amended and Restated Equity Participation and Funding Agreement"Agreement” above.
Joint Venture Agreement deemed effective June 30, 2008 between Entrée Gold Inc. and Ivanhoe Mines Mongolia Inc. XXK (now OTLLC). |
Pursuant toEarn-In Agreement, a joint venture was formed on June 30, 2008 and the parties were required to enter into a joint venture agreementEntrée/Oyu Tolgoi JVA in the form attached to theEarn-In Agreement as Appendix A (the "Joint Venture Agreement").
The Joint Venture AgreementEntrée/Oyu Tolgoi JVA contains provisions governing the parties'parties’ activities on the Entrée/Oyu Tolgoi JV Property, including exploration, acquisition of additional real property and other interests, evaluation of, and if justified, engaging in development and other operations, engaging in marketing products, and completing and satisfying all environmental compliance and other continuing obligations affecting the Entrée/Oyu Tolgoi JV Property.
Equity Participation andEarn-in Agreement dated October 15, 2004, between Entrée Gold Inc. and Ivanhoe Mines Ltd. (now Turquoise Hill), as amended on November 9, 2004 and subsequently assigned to Ivanhoe Mines Mongolia Inc. XXK (OTLLC) on March 1, 2005. |
Under theEarn-In Agreement, OTLLC earned a 70% interest in mineralization above a depth of 560 metresm on the Entrée/Oyu Tolgoi JV Property, and an 80% interest in mineralization below that depth, by spending an aggregate $35 million on exploration. OTLLC completed itsearn-in on June 30, 2008, at which time a joint venture was formed under the terms of the Joint Venture Agreement.Entrée/Oyu Tolgoi JVA. The Joint Venture AgreementEntrée/Oyu Tolgoi JVA was intended to replace theEarn-In Agreement, with theEarn-In Agreement terminating, except for certain provisions that expressly survive the termination. Those parts include provisions related to the Joint Venture Agreement,Entrée/Oyu Tolgoi JVACo title, tenure and related matters and arbitration.
D. | Exchange Controls |
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company tonon-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments tonon-resident holders of the Company'sCompany’s securities, except as discussed below under "Item“Item 10. Additional Information – E. Taxation"Taxation”.
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that theInvestment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control"“control” of the Company by a "non-Canadian"“non-Canadian”. The threshold for acquisitions of control is generally defined as beingone-third or more of the voting shares of the Company. "Non-Canadian"“Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled bynon-Canadians.
E. | Taxation |
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of Common Shares in the capital of the Company by a holder who is ornot, and is not deemed to be, a United States resident of Canada for the purposes of theIncome Tax Act (Canada) (the "Tax Act"“Tax Act”), and who holds Common Shares solely as capital property and does not use or hold, and is not deemed to use or hold, Common Shares in connection with carrying on a business in Canada, referred to in this summary as a "U.S. Holder"“U.S. Holder”. This summary is not applicable to a U.S. Holder that is an insurer carrying on an insurance business in Canada and elsewhere. This summary is based on the current provisions of the Tax Act, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of the Canada Revenue Agency, and the current provisions of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the "Canada-U.S.“Canada-U.S. Tax Convention"Convention”). Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder'sHolder’s particular circumstances.
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder'sHolder’s Common Shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. TheCanada-U.S. Tax Convention reduces the statutory rate with respect to dividends paid to a U.S. Holder, if that U.S. Holder is eligible for benefits under theCanada-U.S. Tax Convention. Where applicable, the general rate of withholding tax under theCanada-U.S. Tax Convention is 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.
A U.S. Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a Common Share unless the Common Share constitutes "taxable“taxable Canadian property"property” of the U.S. Holder for purposes of the Tax Act and the gain is not exempt from tax pursuant to the terms of theCanada-U.S. Tax Convention.
Provided that the Common Shares are listed on a "designated“designated stock exchange"exchange” for purposes of the Tax Act (which currently includes the TSX) at the time of disposition, the Common Shares generally will not constitute "taxable“taxable Canadian property"property” of a U.S. Holder, unless at any time during the 60 month period immediately preceding the disposition: (i) the U.S. Holder, persons with whom the U.S. Holder did not deal at "arm's length"“arm’s length” for the purposes of the Tax Act, partnerships in which the U.S. Holder or a person with whom the U.S. Holder did not deal at “arm’s length” for the purposes of the Tax Act holds a membership interest directly or indirectly through one or more partnerships, or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class of the Company and; (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, "Canadian“Canadian resource properties"properties” (as defined in the Tax Act), "timber“timber resource properties"properties” (as defined in the Tax Act), or options in respect of, or interests in, or for civil law rights in, such property whether or not such property exists.
Even if a Common Share is considered to be "taxable“taxable Canadian property"property” to a U.S. Holder, the U.S. Holder may be exempt from tax under the Tax Act if such shares are "treaty-protected property"“treaty-protected property” for the purposes of the Tax Act. Common Shares owned by a U.S. Holder will generally be "treaty-protected property"“treaty-protected property” if the gain from the disposition of such shares would, because of theCanada-U.S. Tax Convention, be exempt from tax under Part I of the Tax Act.
U.S. Holders who may hold Common Shares as "taxable“taxable Canadian property"property” should consult their own tax advisors.
Certain United States Federal Income Tax Consequences
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of Common Shares of the Company.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, andnon-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, andnon-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "IRS"“IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"“Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, theCanada-U.S. Tax Convention, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term "U.S. Holder"“U.S. Holder” means a beneficial owner of Common Shares that is for U.S. federal income tax purposes:
an individual who is a citizen or resident of the U.S.; |
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia; |
an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Non-U.S. Holders
For purposes of this summary, a "non-U.S. Holder"“non-U.S. Holder” is a beneficial owner of Common Shares that is not a U.S. Holder or is a partnership. This summary does not address the U.S. federal income tax consequences tonon-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of Common Shares. Accordingly, anon-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, andnon-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) aretax-exempt organizations, qualified retirement plans, individual retirement accounts, or othertax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply amark-to-market accounting method; (d) have a "functional currency"“functional currency” other than the U.S. dollar; (e) own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are required to accelerate the recognition of any item of gross income with respect to Common Shares as a result of such income being recognized on an applicable financial statement; or (h)(i) own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold Common Shares in connection with carrying on a business in Canada; (d) persons whose Common Shares constitute "taxable“taxable Canadian property"property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of theCanada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, andnon-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Shares.
If an entity or arrangement that is classified as a partnership (or "pass-through"“pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership and the partners (or owners) of such partnership generally will depend on the activities of the partnership and the status of such partners (or owners). This summary does not address the tax consequences to any such partnership or partner (or owner). Partners (or owners) of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Shares.
Passive Foreign Investment Company Rules
If the Company were to constitute a "passive“passive foreign investment company"company” under the meaning of Section 1297 of the Code, or a "PFIC"“PFIC”, as defined below, for any year during a U.S. Holder'sHolder’s holding period, then certain different and potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of Common Shares. In addition, in any year in which the Company is classified as a PFIC, such holder will be required to file an annual report with the IRS containing such information as Treasury Regulations or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.8621 annually.
PFIC Status of the Company
The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the "income test"“income test”), or (b) 50% or more of the value of the Company'sCompany’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the "asset test"“asset test”). "Gross income"“Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and "passive income"“passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation'scorporation’s commodities are stock in trade of such foreign corporation or other property of a kind which would properly be included in inventory of such foreign corporation, or property held by such foreign corporation primarily for sale to customers in the ordinary course of business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, "passive income"“passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain "related persons"“related persons” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
In addition, under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of the stock of any subsidiary of the Company that is also a PFIC, or a "Subsidiary PFIC"“Subsidiary PFIC”, and will be subject to U.S. federal income tax on their proportionate share of, (a) a distribution on the stock of a Subsidiary PFIC, and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC.
The Company believes that it was classified as a PFIC during the tax year ended December 31, 2015,2019, and may be a PFIC in future tax years. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or a Subsidiary PFIC) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any Subsidiary PFIC.
Default PFIC Rules Under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a "qualified“qualified electing fund"fund”, or "QEF"“QEF”, under Section 1295 of the Code, or a "QEF Election"“QEF Election”, or amark-to-market election under Section 1296 of the Code, or a "Mark-to-Market Election"“Mark-to-Market Election”. A U.S. Holder that does not make either a QEF Election or aMark-to-Market Election will be referred to in this summary as a "Non-Electing“Non-Electing U.S. Holder"Holder”.
ANon-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to, (a) any gain recognized on the sale or other taxable disposition of Common Shares, and (b) any excess distribution received on our Common Shares. A distribution generally will be an "excess distribution"“excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder'sHolder’s holding period for our Common Shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any "excess distribution"“excess distribution” received on Common Shares, must be ratably allocated to each day in aNon-Electing U.S. Holder'sHolder’s holding period for the respective Common Shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. ANon-Electing U.S. Holder that is not a corporation must treat any such interest paid as "personal interest"“personal interest”, which is not deductible.
If the Company is a PFIC for any tax year during which aNon-Electing U.S. Holder holds Common Shares, the Company will continue to be treated as a PFIC with respect to suchNon-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. ANon-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such Common Shares were sold on the last day of the last tax year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its Common Shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its Common Shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder'sHolder’s pro rata share of, (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, "net“net capital gain"gain” is the excess of (i) net long-term capital gain over (ii) net short-term capital loss, and "ordinary earnings"“ordinary earnings” are the excess of (i) "earnings“earnings and profits"profits” over (ii) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as "personal interest"“personal interest”, which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally, (a) may receive atax-free distribution from the Company to the extent that such distribution represents "earnings“earnings and profits"profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election, and (b) will adjust such U.S. Holder'sHolder’s tax basis in our Common Shares to reflect the amount included in income or allowed as atax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as "timely"“timely” if such QEF Election is made for the first year in the U.S. Holder'sHolder’s holding period for our Common Shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder'sHolder’s holding period for our Common Shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder also makes a "purging"“purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Common Shares were sold for their fair market value on the day the QEF Election is effective.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in event that the Company is a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their Common Shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return. However, if the Company does not provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply toNon-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make aMark-to-Market Election only if the Common Shares are marketable stock. Our Common Shares generally will be "marketable stock"“marketable stock” if our Common Shares are regularly traded on, (a) a national securities exchange that is registered with the SEC, (b) the national market system established pursuant to section 11A of the U.S. Exchange Act, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that, (i) such foreign exchange has trading volume, listing, financial disclosure, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced, and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If our Common Shares are traded on such a qualified exchange or other market, our Common Shares generally will be "regularly traded"“regularly traded” for any calendar year during which our Common Shares are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
A U.S. Holder that makes aMark-to-Market Election with respect to its Common Shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such Common Shares. However, if a U.S. Holder does not make aMark-to-Market Election beginning in the first tax year of such U.S. Holder'sHolder’s holding period for our Common Shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, our Common Shares.
A U.S. Holder that makes aMark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (i) the fair market value of our Common Shares, as of the close of such tax year over (ii) such U.S. Holder'sHolder’s tax basis in such Common Shares. A U.S. Holder that makes aMark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder'sHolder’s adjusted tax basis in our Common Shares, over (ii) the fair market value of such Common Shares (but only to the extent of the net amount of previously included income as a result of theMark-to-Market Election for prior tax years).
A U.S. Holder that makes aMark-to-Market Election generally also will adjust such U.S. Holder'sHolder’s tax basis in our Common Shares to reflect the amount included in gross income or allowed as a deduction because of suchMark-to-Market Election. In addition, upon a sale or other taxable disposition of Common Shares, a U.S. Holder that makes aMark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (i) the amount included in ordinary income because of suchMark-to-Market Election for prior tax years over (ii) the amount allowed as a deduction because of suchMark-to-Market Election for prior tax years).
A U.S. Holder makes aMark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return. AMark-to-Market Election applies to the tax year in which suchMark-to-Market Election is made and to each subsequent tax year, unless our Common Shares cease to be "marketable stock"“marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, aMark-to-Market Election.
Although a U.S. Holder may be eligible to make aMark-to-Market Election with respect to our Common Shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, theMark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Shares that would otherwise betax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Common Shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such Common Shares.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
Ownership and Disposition of Common Shares
The following discussion is subject to the rules described above under the heading "Passive“Passive Foreign Investment Company Rules"Rules”.
Distributions on Common Shares
Subject to the PFIC rules discussed above, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to our Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated "earnings“earnings and profits"profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC. To the extent that a distribution exceeds the current and accumulated "earnings“earnings and profits"profits” of the Company, such distribution will be treated first as atax-free return of capital to the extent of a U.S. Holder'sHolder’s tax basis in our Common Shares and thereafter as gain from the sale or exchange of such Common Shares. See "Sale“Sale or Other Taxable Disposition of Common Shares"Shares” below. However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to our Common Shares will constitute ordinary dividend income. Dividends received on Common Shares generally will not be eligible for the "dividends“dividends received deduction"deduction”. Subject to applicable limitations and provided the Company is eligible for the benefits of theCanada-U.S. Tax Convention or the Common Shares are readily tradable on a United States securities market, dividends paid by the Company tonon-corporate U.S. Holders generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of Common Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder'sHolder’s tax basis in such Common Shares sold or otherwise disposed of. Subject to the PFIC rules discussed above, gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, our Common Shares have been held for more than one year.
Preferential tax rates apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Common Shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder'sHolder’s U.S. federal income tax liability on adollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder'sHolder’s income subject to U.S. federal income tax. This election is made on ayear-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by anon-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their Common Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, Common Shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%24%, if a U.S. Holder, (a) fails to furnish such U.S. Holder'sHolder’s correct U.S. taxpayer identification number (generally on IRS FormW-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder'sHolder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
F. | Dividends and Paying Agents |
Not Applicable.
G. | Statement by Experts |
Not Applicable.
H. | Documents on Display |
We are subject to the informational requirements of the U.S. Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330.
We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR"(“SEDAR”) (www.sedar.com), the Canadian equivalent of the SEC'sSEC’s electronic document gathering and retrieval system.
We "incorporate“incorporate by reference"reference” information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this Annual Report and more recent information supersedes more dated information contained or incorporated by reference in this Annual Report.
As a foreign private issuer, we are exempt from the rules under the U.S. Exchange Act prescribing the furnishing and content of proxy statements to shareholders.
We will provide without charge to each person, including any beneficial owner, to whom a copy of this Annual Report has been delivered, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this Annual Report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: Suite 12011650 - 1166 Alberni1066 West Hastings Street, Vancouver, British Columbia, Canada V6E 3Z3.3X1. The Company is required to file financial statements and other information with the Securities Commission in each of the Provinces of Canada, except Quebec, electronically through SEDAR which can be viewed at www.sedar.com.
I. | Subsidiary Information |
Not Applicable.
The Company’s credit risk is the risk that one partyprimarily attributable to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. receivables.
The Company deposits the majority oflimits its credit exposure on cash and cash equivalents held in bank accounts by holding its key transactional bank accounts with highlarge, highly rated financial institutions.
The Company’s receivables balance was not significant and, therefore, was not exposed to significant credit quality financial institutions in Canada, Australia and the United States and holds limited balances in banks in Mongolia, Peru, China and Barbados as required to meet current expenditures. risk.
The carrying amount of financial assets recorded in the consolidated financial statements, net of any allowances for losses, represents the Company'sCompany’s maximum exposure to credit risk.
Liquidity risk
The carrying amountCompany manages liquidity risk by trying to maintain enough cash balances to ensure that it is able to meet its short term and long-term obligations as and when they fall due. Company-wide cash projections are managed centrally and regularly updated to reflect the dynamic nature of accounts receivable, accounts payablethe business and accrued liabilitiesfluctuations caused by commodity price and exchange rate movements.
The Company’s operating results may vary due to fluctuation in commodity price, inflation, foreign exchange rates and certain share prices.
Interest rate risk
The Company’s interest rate risk arises primarily from related parties approximates fair value duethe interest received on cash and cash equivalents and on loan payable which is at variable rates. As at December 31, 2019, with other variables unchanged, a 1% increase in the interest rate applicable to the short termloan payable would result in an insignificant change in net loss. Deposits are invested on a short-term basis to enable adequate liquidity for payment of these financial instruments.
As at December 31, 2019, the Company has not entered into any contracts to manage interest rate risk.
Foreign exchange risk
The functional currency of countries, including Canada,the parent company is C$. The functional currency of the significant subsidiaries and the reporting currency of the Company is the United States Mongolia and Australia, and itdollar.
As at December 31, 2019, the Company has not entered into contracts to manage foreign exchange risk.
The Company is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency.
December 31, 2019
| December 31, 2018
| |||||||
Cash and cash equivalents | $ | 5,380 | $ | 6,154 | ||||
Investments | - | 912 | ||||||
Accounts payable and accrued liabilities
|
| (72
| )
|
| (346
| )
| ||
$
| 5,308
|
| $
| 6,720
|
|
As at December 31, 2015 and 2014:
2015 | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
US Dollars | Australian Dollars | Peruvian Nuevo Sol | Chinese Yuan | Mongolian Tugriks | ||||||||||||||||
Cash and cash equivalents | 20,265 | 358 | - | 27 | 27,070 | |||||||||||||||
Other | 268 | 9 | - | - | 37,319 | |||||||||||||||
Accounts payable and accrued liabilities | (40 | ) | (101 | ) | - | - | 162 | |||||||||||||
Net balance | 20,493 | 266 | - | 27 | 64,550 | |||||||||||||||
Equivalent in Canadian Dollars | 28,362 | 268 | - | 6 | 45 | |||||||||||||||
Rate to convert to C$ | 1.3840 | 1.0083 | 0.4056 | 0.2131 | 0.0006953 | |||||||||||||||
2014 | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
US Dollars | Australian Dollars | Peruvian Nuevo Sol | Chinese Yuan | Mongolian Tugriks | ||||||||||||||||
Cash and cash equivalents | 31,052 | 1,084 | (97 | ) | 28 | 87,976 | ||||||||||||||
Other | 312 | 13 | - | - | 43,624 | |||||||||||||||
Accounts payable and accrued liabilities | (1,556 | ) | (95 | ) | - | - | (122 | ) | ||||||||||||
Net balance | 29,808 | 1,002 | (97 | ) | 28 | 131,478 | ||||||||||||||
Equivalent in Canadian Dollars | 34,580 | 950 | (38 | ) | 5 | 81 | ||||||||||||||
Rate to convert to C$ | 1.1601 | 0.9479 | 0.3898 | 0.1869 | 0.0006144 |
Not Applicable.
D. | American Depository Receipts |
The Company does not have securities registered as American Depository Receipts.
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Item 14.A.-D. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
E. | Use of Proceeds |
Not Applicable.
An evaluation was performed under the supervision and with the participation of the Company'sCompany’s Audit Committee and management, including the Company'sCompany’s CEO and the Company'sCompany’s CFO, of the effectiveness of the design and operation of the Company'sCompany’s disclosure controls and procedures pursuant to Rules13a-15(b) and15d-15(b) of the U.S. Exchange Act as of December 31, 2015.2019. Based on their evaluation, the Company'sCompany’s CEO and CFO have concluded that the disclosure controls and procedures were effective to give reasonable assurance that the information required to be disclosed by the Company in reports that it files or submits under the U.S. Exchange Act is, (a) recorded, processed, summarized and reported, within the time periods specified in the SEC'sSEC’s rules and forms, and (b) accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
B. | Management’s Annual Report on Internal Control Over Financial Reporting |
The Company'sCompany’s management, including the Company'sCompany’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over the Company'sCompany’s internal control over financial reporting, as such term is defined in Rule13a-15(f) under the U.S. Exchange Act. The Company'sCompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP.IFRS. The Company'sCompany’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. GAAPIFRS and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Because of their inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company'sCompany’s management (with the participation of the CEO and the CFO) conducted an evaluation of the effectiveness of the Company'sCompany’s internal control over financial reporting as of December 31, 2015.2019. This evaluation was based on the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that the Company'sCompany’s internal control over financial reporting was effective as at December 31, 2015,2019, and management'smanagement’s assessment did not identify any material weaknesses.
C. | Attestation Report of the Registered Public Accounting Firm |
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management'sManagement’s report was not subject to attestation by our registered public accounting firm pursuant the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which permits the companyCompany to provide only management'smanagement’s report in this Annual Report. The Dodd-Frank Act permits a "non-accelerated filer"“non-accelerated filer” to provide only management'smanagement’s report on internal control over financial reporting in an Annual Report and omit an attestation report of the issuer'sissuer’s registered public accounting firm regarding management'smanagement’s report on internal control over financial reporting.
D. | Changes in Internal Control Over Financial Reporting |
Based upon their evaluation of our controls, our CEO and CFO have concluded that there were no significant changes in our internal control over financial reporting or in other factors during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. | [Reserved] |
Item 16A. | Audit Committee Financial Expert |
The Company'sCompany’s Board has determined that Gorden GlennAnna Stylianides qualifies as a financial expert (as defined in Item 407(d)(5) of RegulationS-K under the U.S. Exchange Act), is financially sophisticated (as determined in accordance with Section 803B(2)(iii) of the NYSE MKT Company Guide), and is independent (as determined under U.S. Exchange Act Rule10A-3 and section 803A of the NYSE MKTAmerican Company Guide).
Item 16B. | Code of Ethics |
The Company is committed to the highest standards of legal and ethical business conduct. The Company has the Code of Ethics, which applies to all of its directors, officers, employees and employees,consultants, including the CEO and CFO. This Code of Ethics summarizes the legal, ethical and regulatory standards that the Company must follow and serves as a reminder to the directors, officers, employees and employeesconsultants of the seriousness of that commitment. Compliance with this Code of Ethics and high standards of business conduct is mandatory for every director, officer, employee and employeeconsultant of the Company. The Code of Ethics meets the requirements for a "code“code of ethics"ethics” within the meaning of that term in Form20-F.
A copy of the Code of Ethics in full text is available on the Company'sCompany’s website at www.entreegold.comwww.EntreeResourcesLtd.com and in print to any shareholder who requests it. All required substantive amendments to the Code of Ethics, and all waivers of the Code of Ethics with respect to any of the officers covered by it, will be posted on the Company'sCompany’s website at www.entreegold.comwww.EntreeResourcesLtd.com within five business days of the amendment or waiver,, and provided in print to any shareholder who requests them.
During the fiscal year ended December 31, 2015,2019, the Company did not substantively amend, waive or implicitly waive any provision of the Code of Ethics with respect to any of the directors, officers or employees subject to it.
Item 16C. | Principal Accountant Fees and Services |
The following table shows the aggregate fees billed to the Company by Davidson & Company LLP and its affiliates, Chartered Professional Accountants, the Company'sCompany’s independent registered public auditing firm, in each of the last two years.
2015 (US$) | 2014 (US$) | |||||||
Audit Fees(1) | $ | 36,127 | $ | 51,720 | ||||
Audit Related Fees(2) | $ | 11,778 | $ | 19,393 | ||||
Tax Fees(3) | $Nil | $Nil | ||||||
All other fees(4) | $ | 10,838 | $Nil | |||||
Total: | $ | 58,743 | $ | 71,113 |
2019 (US$) | 2018 (US$) | |||||||||
Audit Fees(1)
|
| $45,591
|
|
| $35,889
|
| ||||
Audit Related Fees(2) | $Nil | $Nil | ||||||||
Tax Fees(3) | $5,004 | $Nil | ||||||||
All other fees
|
| $Nil
|
|
| $Nil
|
| ||||
Total: | $50,595 | $35,889 |
(1) | Audits of the |
(2) | Audit-related fees paid for assurance and related services by the auditors that were reasonably related to the performance of the audit or the review of the |
(3) | Tax compliance, taxation advice and tax planning for international operations. |
Pre-Approval of Audit andNon-Audit Services Provided by Independent Auditors
The Audit Committeepre-approves all audit andnon-audit services to be provided to the Company by its independent auditors and none were approved on the basis of the de minimus exemption set forth in Rule2-01(c)(7)(i)(C) of RegulationS-X during the fiscal year ended December 31, 2015. 2019.Non-audit services that are prohibited to be provided to the Company by its independent auditors may not bepre-approved. In addition, prior to the granting of anypre-approval, the Audit Committee must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. Non-auditNo materialnon-audit services pre-approved by the Audit Committee andwere performed by the Company'sCompany’s auditor during the fiscal year ended December 31, 2015 comprised surplus calculations for one of the Company's Mongolian subsidiaries.2019.
Item 16D. | Exemptions from the Listing Standards for Audit Committees |
None.
Item 16G. | Corporate Governance |
Not applicable.
Item 16H. | Mine Safety Disclosure. |
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA"(“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"“Mine Act”). During the year ended December 31, 2015,2019, the Company had no mines in the United States that were subject to regulation by the MSHA under the Mine Act.
Item 18. | Financial Statements |
The Company'sCompany’s financial statements are stated in U.S. Dollars and are prepared in accordance with U.S. GAAP.
The following financial statements pertaining to the Company are filed as part of this Annual Report:
Independent |
Consolidated Statements of |
● | Consolidated Statements of Comprehensive Loss for the years ended December 31, |
Consolidated Statement of |
Consolidated Statements of Cash Flows for the years ended December 31, |
Notes to Consolidated Financial Statements for the |
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
December 31, 20152019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Entrée Gold Inc.
Opinion on theConsolidatedFinancial Statements
We have audited the accompanying consolidated statements of financial statementsposition of Entrée Gold Inc.Resources Ltd. (the "Company"“Company”), which comprise the consolidated balance sheets of Entrée Gold Inc. as of December 31, 20152019 and 2014,2018, and the related consolidated statements of operations and comprehensive loss, stockholders' equity,changes in shareholders’ deficiency, and cash flows for the years ended December 31, 2015, 20142019, 2018, and 2013. 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2019, 2018, and 2017 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Entrée Gold Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years ended December 31, 2015, 2014 and 2013 in conformity with accounting principles generally accepted in the United States of America.
“DAVIDSON & COMPANY LLP"
Vancouver, Canada | Chartered Professional Accountants | |
March 13, 2020
ENTRÉE GOLD INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(Expressed in United States dollars) | ||||||||
December 31, | December 31, | |||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents (Note 3) | $ | 22,785,658 | $ | 33,517,096 | ||||
Receivables | 97,783 | 133,729 | ||||||
Prepaid expenses | 311,072 | 856,358 | ||||||
Total current assets | 23,194,513 | 34,507,183 | ||||||
Equipment (Note 5) | 109,184 | 177,566 | ||||||
Mineral property interests (Note 6) | 37,714,492 | 44,419,538 | ||||||
Reclamation deposits | 478,925 | 474,959 | ||||||
Other assets | 165,371 | 111,252 | ||||||
Total assets | $ | 61,662,485 | $ | 79,690,498 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | $ | 1,350,261 | $ | 1,903,472 | ||||
Loans payable to Oyu Tolgoi LLC (Note 7) | 6,823,726 | 6,355,408 | ||||||
Deferred revenue (Note 8) | 28,924,857 | 34,507,372 | ||||||
Deferred income tax liabilities (Note 11) | 3,567,297 | 3,407,124 | ||||||
Total liabilities | 40,666,141 | 46,173,376 | ||||||
Stockholders' equity | ||||||||
Common stock, no par value, unlimited number authorized, (Note 9) | 177,206,360 | 177,138,693 | ||||||
147,330,917 (December 31, 2014 - 146,984,385) issued and outstanding | ||||||||
Additional paid-in capital | 20,517,394 | 20,346,551 | ||||||
Accumulated other comprehensive loss (Note 14) | (7,778,347 | ) | (2,850,122 | ) | ||||
Accumulated deficit | (168,949,063 | ) | (161,118,000 | ) | ||||
Total stockholders' equity | 20,996,344 | 33,517,122 | ||||||
Total liabilities and stockholders' equity | $ | 61,662,485 | $ | 79,690,498 |
Entrée Resources Ltd.
Consolidated Statements of Financial Position
As at December 31, 2019 and continuance2018
(expressed in thousands of U.S. dollars, except where indicated)
Note |
December 31, |
December 31, | ||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ 5,380 | $ 6,154 | ||||||||
Receivables and prepaid expenses | 122 | 68 | ||||||||
Prepaid licence fees | 158 | - | ||||||||
Investments
| 6
|
| -
|
|
| 912
|
| |||
5,660 | 7,134 | |||||||||
Non-current assets | ||||||||||
Property and equipment | 7, 10 | 316 | 87 | |||||||
Other assets | 8 | 114 | 199 | |||||||
Deposits and other
|
| 12
|
|
| 12
|
| ||||
| 442
|
|
| 298
|
| |||||
Total assets
|
| $ 6,102
|
|
| $ 7,432
|
| ||||
Liabilities | ||||||||||
Current liabilities | ||||||||||
Accounts payable and accrued liabilities | 21 | $ 72 | $ 346 | |||||||
Current portion of lease liabilities
| 10
|
| 103
|
|
| -
|
| |||
175 | 346 | |||||||||
Non-current liabilities | ||||||||||
Lease liabilities | 10 | 201 | - | |||||||
Othernon-current liabilities | - | 44 | ||||||||
Loan payable to Oyu Tolgoi LLC | 11 | 9,035 | 8,380 | |||||||
Deferred revenue
| 12
|
| 43,671
|
|
| 38,411
|
| |||
| 52,907
|
| 46,835 | |||||||
Total liabilities
|
| 53,082
|
|
| 47,181
|
| ||||
Shareholders’ deficiency | ||||||||||
Share capital | 13 | 173,095 | 172,955 | |||||||
Reserves | 22,445 | 22,199 | ||||||||
Accumulated other comprehensive (loss) income | (407 | ) | 1,688 | |||||||
Deficit
|
| (242,113
| )
|
| (236,591
| )
| ||||
Total shareholders’ deficiency
|
| (46,980
| )
|
| (39,749
| )
| ||||
Total liabilities and shareholders’ deficiency
|
| $ 6,102
|
|
| $ 7,432
|
|
Nature of operations
Commitments and Contingencies
The accompanying notes are an integral part of these consolidated financial statements.
ENTRÉE GOLD INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||||||||||||
(Expressed in United States dollars) | ||||||||||||
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
EXPENSES | ||||||||||||
Exploration (Note 6) | $ | 5,160,910 | $ | 9,054,887 | $ | 6,102,992 | ||||||
General and administration | 4,730,904 | 4,151,910 | 6,638,262 | |||||||||
Consultancy and advisory fees | 125,000 | 830,623 | 1,941,130 | |||||||||
Impairment of mineral property interests (Note 6) | - | 552,095 | 437,732 | |||||||||
Depreciation | 42,528 | 65,517 | 102,941 | |||||||||
Gain on sale of mineral property interests | - | (28,096 | ) | (451,892 | ) | |||||||
Foreign exchange gain | (2,919,459 | ) | (1,978,854 | ) | (1,113,728 | ) | ||||||
Loss from operations | (7,139,883 | ) | (12,648,082 | ) | (13,657,437 | ) | ||||||
Interest income (expense) | (412,077 | ) | 30,154 | 171,143 | ||||||||
Loss from equity investee (Note 4) | (118,712 | ) | (107,907 | ) | (146,051 | ) | ||||||
Fair value adjustment of asset backed commercial paper | - | - | 147,564 | |||||||||
Loss before income taxes | (7,670,672 | ) | (12,725,835 | ) | (13,484,781 | ) | ||||||
Current income tax recovery (expense) (Note 11) | (218 | ) | 123,255 | (319,112 | ) | |||||||
Deferred income tax recovery (expense) (Note 11) | (160,173) | 3,933,392 | 2,381,868 | |||||||||
Net loss | $ | (7,831,063 | ) | $ | (8,669,188 | ) | $ | (11,422,025 | ) | |||
Comprehensive loss: | ||||||||||||
Net loss | $ | (7,831,063 | ) | $ | (8,669,188 | ) | $ | (11,422,025 | ) | |||
Foreign currency translation adjustment (Note 14) | (4,928,225 | ) | (3,315,737 | ) | (2,787,404 | ) | ||||||
Comprehensive loss: | $ | (12,759,288 | ) | $ | (11,984,925 | ) | $ | (14,209,429 | ) | |||
Basic and diluted net loss per share | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.08 | ) | |||
Weighted average number of common shares outstanding | 147,036,578 | 146,883,700 | 143,847,888 |
Entrée Resources Ltd.
Consolidated Statements of Comprehensive Loss
For the years ended December 31, 2019, 2018 and 2017
(expressed in thousands of U.S. dollars, except where indicated)
Note | 2019 | 2018 | 2017 | |||||||||||
Expenses | ||||||||||||||
Exploration | 15 | $ | 173 | $ | 175 | $ | 332 | |||||||
General and administrative | 1,490 | 1,145 | 1,656 | |||||||||||
Share-based compensation | 13 | 340 | 506 | 678 | ||||||||||
Depreciation | 7 | 105 | 22 | 20 | ||||||||||
Other | - | (13 | ) | 192 | ||||||||||
Operating loss
|
| 2,108
|
|
| 1,835
|
|
| 2,878
|
| |||||
Gain on sale of investments | 6 | (123 | ) | - | - | |||||||||
Foreign exchange (gain) loss | (195 | ) | 287 | (380 | ) | |||||||||
Interest income | (137 | ) | (111 | ) | (116 | ) | ||||||||
Interest expense | 11 | 319 | 307 | 287 | ||||||||||
Loss from equity investee | 8 | 273 | 175 | 215 | ||||||||||
Finance costs | 29 | - | - | |||||||||||
Deferred revenue finance costs | 12 | 3,250 | 2,985 | - | ||||||||||
Gain on sale of mining property interest | 9 | - | (353 | ) | - | |||||||||
Unrealized loss on investments | 6 | - | 73 | - | ||||||||||
Loss on the Arrangement
| 5
|
| -
|
|
| -
|
|
| 33,627
|
| ||||
Loss before income taxes | 5,524 | 5,198 | 36,511 | |||||||||||
Income tax recovery
| 16
|
| -
|
|
| -
|
|
| (72
| )
| ||||
Net loss from continuing operations
|
| 5,524
|
|
| 5,198
|
|
| 36,439
|
| |||||
Discontinued operations | ||||||||||||||
Net loss from discontinued operations
| 5
|
| -
|
|
| -
|
|
| 176
|
| ||||
Net loss for the year
|
| 5,524
|
|
| 5,198
|
|
| 36,615
|
| |||||
Other comprehensive loss (income) | ||||||||||||||
Foreign currency translation
|
| 2,095
|
|
| (3,372
| )
|
| 1,684
|
| |||||
Total comprehensive loss
| $
| 7,619
|
| $
| 1,826
|
| $
| 38,299
|
| |||||
Net loss per common share | ||||||||||||||
Basic and fully diluted – continuing operations | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.21 | ) | |||||
Basic and fully diluted – discontinued operations | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||
Weighted average number of common shares outstanding | ||||||||||||||
Basic and fully diluted (000’s)
|
| 174,907
|
|
| 174,344
|
|
| 172,259
|
| |||||
Total common shares issued and outstanding (000’s)
| 13
|
| 175,470
|
|
| 174,807
|
|
| 173,573
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ENTRÉE GOLD INC. | ||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
(Expressed in United States dollars) | ||||||||||||||||||||||||
Number of Shares | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||
Balance, December 31, 2012 | 128,877,243 | $ | 167,428,814 | $ | 18,672,864 | $ | 3,253,019 | $ | (141,026,787 | ) | $ | 48,327,910 | ||||||||||||
Shares issued: | ||||||||||||||||||||||||
Private placement | 17,857,142 | 9,722,897 | - | - | - | 9,722,897 | ||||||||||||||||||
Stock-based compensation | - | - | 1,422,297 | - | - | 1,422,297 | ||||||||||||||||||
Share issuance costs | - | (86,636 | ) | - | - | - | (86,636 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | (2,787,404 | ) | - | (2,787,404 | ) | ||||||||||||||||
Net loss | - | - | - | - | (11,422,025 | ) | (11,422,025 | ) | ||||||||||||||||
Balance, December 31, 2013 | 146,734,385 | $ | 177,065,075 | $ | 20,095,161 | $ | 465,615 | $ | (152,448,812 | ) | $ | 45,177,039 | ||||||||||||
Shares issued: | ||||||||||||||||||||||||
Mineral property interests | 250,000 | 73,618 | - | - | - | 73,618 | ||||||||||||||||||
Stock-based compensation | - | - | 251,390 | - | - | 251,390 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | (3,315,737 | ) | - | (3,315,737 | ) | ||||||||||||||||
Net loss | - | - | - | - | (8,669,188 | ) | (8,669,188 | ) | ||||||||||||||||
Balance, December 31, 2014 | 146,984,385 | $ | 177,138,693 | $ | 20,346,551 | $ | (2,850,122 | ) | $ | (161,118,000 | ) | $ | 33,517,122 | |||||||||||
Shares issued: | ||||||||||||||||||||||||
Exercise of stock options | 346,532 | 67,667 | (26,532 | ) | - | - | 41,135 | |||||||||||||||||
Stock-based compensation | - | - | 197,375 | - | - | 197,375 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | (4,928,225 | ) | - | (4,928,225 | ) | ||||||||||||||||
Net loss | - | - | - | - | (7,831,063 | ) | (7,831,063 | ) | ||||||||||||||||
Balance, December 31, 2015 | 147,330,917 | $ | 177,206,360 | $ | 20,517,394 | $ | (7,778,347 | ) | $ | (168,949,063 | ) | $ | 20,996,344 |
Entrée Resources Ltd.
Consolidated Statements of these consolidated financial statements
ENTRÉE GOLD INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(Expressed in United States dollars) | ||||||||||||
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (7,831,063 | ) | $ | (8,669,188 | ) | $ | (11,422,025 | ) | |||
Items not affecting cash: | ||||||||||||
Depreciation | 42,528 | 65,517 | 102,941 | |||||||||
Stock-based compensation | 197,375 | 251,390 | 1,422,297 | |||||||||
Loss from equity investee | 118,712 | 107,907 | 146,051 | |||||||||
Interest expense | 279,405 | 264,869 | 260,453 | |||||||||
Deferred income tax expense (recovery) | 160,173 | (3,933,392 | ) | (2,381,868 | ) | |||||||
Gain on sale of mineral property interests | - | (28,096 | ) | (451,892 | ) | |||||||
Impairment of mineral property interests | - | 552,095 | 437,732 | |||||||||
Unrealized foreign exchange gain | (2,988,185 | ) | (1,966,349 | ) | (919,289 | ) | ||||||
Other items not affecting cash | 11,992 | 38,075 | 44,202 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Receivables | 15,457 | 55,362 | 6,109 | |||||||||
Prepaid expenses | 439,319 | (176,164 | ) | (22,569 | ) | |||||||
Other assets | (2,291 | ) | 35,451 | (3,592 | ) | |||||||
Accounts payable and accrued liabilities | (264,914 | ) | 784,886 | 760,600 | ||||||||
Deposit on metal credit delivering obligation | - | - | 40,000,000 | |||||||||
Net cash provided by (used in) operating activities | (9,821,492 | ) | (12,617,637 | ) | 27,979,150 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of capital stock | 41,135 | - | 9,722,897 | |||||||||
Share issue costs | - | - | (86,636 | ) | ||||||||
Net cash provided by financing activities | 41,135 | - | 9,636,261 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Mineral property interests | (500,000 | ) | (100,000 | ) | (50,000 | ) | ||||||
Reclamation deposits | (3,628 | ) | 17,249 | 115,180 | ||||||||
Acquisition of equipment | (12,445 | ) | (13,074 | ) | (7,623 | ) | ||||||
Proceeds from sale of royalty interest | - | - | 5,000,000 | |||||||||
Proceeds from sale of mineral property interests | - | 28,096 | 451,892 | |||||||||
Net cash provided by (used in) investing activities | (516,073 | ) | (67,729 | ) | 5,509,449 | |||||||
Effect of foreign currency translation on cash and | ||||||||||||
cash equivalents | (435,008 | ) | (498,754 | ) | (679,152 | ) | ||||||
Change in cash and cash equivalents | ||||||||||||
during the year | (10,731,438 | ) | (13,184,120 | ) | 42,445,708 | |||||||
Cash and cash equivalents, beginning of year | 33,517,096 | 46,701,216 | 4,255,508 | |||||||||
Cash and cash equivalents, end of year | $ | 22,785,658 | $ | 33,517,096 | $ | 46,701,216 | ||||||
Cash paid for interest during the year | $ | - | $ | - | $ | - | ||||||
Cash paid for income taxes during the year | $ | - | $ | - | $ | - |
For the years ended December 31, 2019, 2018, 2017
(expressed in thousands of U.S. dollars, except where indicated)
Note | Number (000’s) | Share capital | Reserves | Accumulated other comprehensive (loss) income | Subscriptions received in advance | Deficit | Total | |||||||||||||||||||||||||
Balance at December 31, 2018
|
| 174,807
|
| $
| 172,955
|
| $
| 22,199
|
| $
| 1,688
|
| $
| -
|
| $
| (236,591)
|
| $
| (39,749)
|
| |||||||||||
Adjustment on initial application of IFRS 16
|
| 4(o)
|
|
| -
|
|
| -
|
|
| -
|
|
| -
|
|
| -
|
|
| 2
|
|
| 2
|
| ||||||||
Net loss and comprehensive loss | - | - | - | (2,095) | - | (5,524) | (7,619) | |||||||||||||||||||||||||
Share-based compensation | - | - | 340 | - | - | - | 340 | |||||||||||||||||||||||||
Issuance of share capital – share options
|
| 663
|
|
| 140
|
|
| (94)
|
|
| -
|
|
| -
|
|
| -
|
|
| 46
|
| |||||||||||
Balance at December 31, 2019
| 175,470 | $ | 173,095 | $ | 22,445 | $ | (407) | $ | - | $ | (242,113) | $ | (46,980) | |||||||||||||||||||
Balance at December 31, 2017
| 173,573 | $ | 172,308 | $ | 22,175 | $ | (1,684) | $ | - | $ | (217,288) | $ | (24,489) | |||||||||||||||||||
Net loss and comprehensive income | - | - | - | 3,372 | - | (5,198) | (1,826) | |||||||||||||||||||||||||
IFRS adjustments | 4(o) | - | - | - | - | - | (14,105) | (14,105) | ||||||||||||||||||||||||
Share-based compensation | - | - | 506 | - | - | - | 506 | |||||||||||||||||||||||||
Issuance of share capital – share options | 1,234 | 647 | (482) | - | - | - | 165 | |||||||||||||||||||||||||
Balance at December 31, 2018
| 174,807 | $ | 172,955 | $ | 22,199 | $ | 1,688 | $ | - | $ | (236,591) | $ | (39,749) | |||||||||||||||||||
Balance at December 31, 2016
| 153,045 | $ | 178,740 | $ | 20,863 | $ | - | $ | 559 | $ | (180,673) | $ | 19,489 | |||||||||||||||||||
Net loss and comprehensive loss | - | - | - | (2,481) | - | (36,615) | (39,096) | |||||||||||||||||||||||||
Share-based compensation | - | - | 632 | - | - | - | 632 | |||||||||||||||||||||||||
Transfer of net assets to Mason Resources | 5 | - | (11,595) | - | 797 | - | - | (10,798) | ||||||||||||||||||||||||
Issuance of share capital – inducement bonus shares | 100 | 37 | - | - | - | - | 37 | |||||||||||||||||||||||||
Issuance of share capital – private placement | 18,529 | 4,478 | 1,129 | - | (559) | - | 5,048 | |||||||||||||||||||||||||
Issuance of share capital – share options
| 1,899 | 648 | (449) | - | - | - | 199 | |||||||||||||||||||||||||
Balance at December 31, 2017
| 173,573 | $ | 172,308 | $ | 22,175 | $ | (1,684) | $ | - | $ | (217,288) | $ | (24,489) |
The accompanying notes are an integral part of these consolidated financial statements.
Entrée Resources Ltd.
Consolidated Statements of Cash Flows
For the years ended December 31, 2015
(Expressedexpressed in United States dollars)thousands of U.S. dollars, except where indicated)
Note | 2019 | 2018 | 2017 | |||||||||||
Cash flows used in operating activities | ||||||||||||||
Net loss from continuing operations | $ | (5,524 | ) | $ | (5,198 | ) | $ | (36,439 | ) | |||||
Items not affecting cash: | ||||||||||||||
Depreciation | 105 | 22 | 20 | |||||||||||
Share-based compensation | 13 | 340 | 506 | 678 | ||||||||||
Loss from equity investee | 8 | 273 | 175 | 215 | ||||||||||
Interest expense | 11 | 319 | 307 | 287 | ||||||||||
Finance cost | 29 | - | - | |||||||||||
Gain on sale of investments | 6 | (123 | ) | - | - | |||||||||
Unrealized foreign exchange (gains) losses | (176 | ) | 249 | (1,471 | ) | |||||||||
Deferred revenue finance costs | 12 | 3,250 | 2,985 | - | ||||||||||
Gain on sale of mining property interest | 9 | - | (353 | ) | - | |||||||||
Unrealized loss on investments | 6 | - | 73 | - | ||||||||||
Loss on the Arrangement | 5 | - | - | 33,627 | ||||||||||
Income tax recovery | 16 | - | - | (72 | ) | |||||||||
Other | 5 | (9 | ) | 11 | ||||||||||
(1,502 | ) | (1,243 | ) | (3,144 | ) | |||||||||
Changes innon-cash operating working capital: | ||||||||||||||
(Increase) decrease in receivables and prepaids | (54 | ) | 333 | (354 | ) | |||||||||
(Decrease) increase in accounts payable and accruals | (260 | ) | 133 | (102 | ) | |||||||||
Discontinued operations
| 5 | - | - | 604 | ||||||||||
| (1,816 | ) | (777 | ) | (2,996 | ) | ||||||||
Cash flows from (used in) investing activities | ||||||||||||||
Proceeds from sale of investments | 6 | 1,035 | - | - | ||||||||||
Net cash outflow on sale of mining property interest | 9 | - | (120 | ) | - | |||||||||
Purchase of equipment | - | (6 | ) | (100 | ) | |||||||||
Cash paid in connection with the Arrangement
| 5 | - | - | (8,843 | ) | |||||||||
| 1,035 | (126 | ) | (8,943 | ) | |||||||||
Cash flows (used in) from financing activities | ||||||||||||||
Repayment of lease liability | 10 | (80 | ) | - | - | |||||||||
Proceeds from issuance of common shares – share options | 13 | 46 | 165 | 199 | ||||||||||
Proceeds from issuance of common shares – private placement
| 13 | - | - | 5,038 | ||||||||||
| (34 | ) | 165 | 5,237 | ||||||||||
Decrease in cash and cash equivalents | (815 | ) | (738 | ) | (6,702 | ) | ||||||||
Cash and cash equivalents - beginning of year | 6,154 | 7,068 | 13,391 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents
| 41 | (176 | ) | 379 | ||||||||||
Cash and cash equivalents - end of year
| $ | 5,380 | $ | 6,154 | $ | 7,068 | ||||||||
Cash and cash equivalents is represented by:
| ||||||||||||||
Cash | $ | 5,346 | $ | 6,120 | $ | 7,031 | ||||||||
Cash equivalents | 34 | 34 | 37 | |||||||||||
Total cash and cash equivalents
| $ | 5,380 | $ | 6,154 | $ | 7,068 |
Supplemental cash flow information (Note 19)
The accompanying notes are an integral part of these consolidated financial statements.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
1 | Nature of operations |
Entrée Gold Inc. was incorporated under the laws of the Province of British Columbia on July 19, 1995 and continued under the laws of the Yukon Territory on January 22, 2003. On May 27, 2005, Entrée Gold Inc. changed its governing jurisdiction from the Yukon Territory to British Columbia by continuing into British Columbia under the Business Corporations Act (British Columbia). The principal business activity of Entrée Gold Inc.Resources Ltd., together with its subsidiaries (collectively referred to as the "Company"“Company” or “Entrée”), is focused on the exploration of mineral property interests. To date, theThe Company is principally focused on its Entrée/Oyu Tolgoi Joint Venture Property in Mongolia.
The Company has not generated significant revenues from its operationsprimary listing in Canada on the Toronto Stock Exchange (“TSX”) and is considered to beits common shares also trade in the exploration stage.
The Company’s registered office is at Suite 2900, 550 Burrard Street, Vancouver, BC, V6C 0A3, Canada.
All amounts are expressed in United States dollars, except for certain amounts denoted in Canadian dollars ("(“C$"”).
These consolidated financial statements have been prepared on the assumptionbasis of accounting principles applicable to a going concern which assumes that the Company will be able to continue for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company currently earns no operating revenues. Continued operations of the Company are dependent upon the Company's ability to secure additional equity capital or receive other financial support, and in the longer term to generate profits from business operations. Management believes that the Companyestimates it has sufficient working capital to maintain itscontinue operations for the next 12 months.
2 | Basis of presentation |
These consolidated financial statements have been prepared in conformityaccordance with generally accepted accounting principles ("GAAP"International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements have been prepared on a going concern basis, and in making the United States of America and include the accounts ofassessment that the Company is a going concern, management have taken into account all available information about the future, which is at least, but is not limited to, twelve months from December 31, 2019.
The consolidated financial statements were approved and allauthorized for issue by the Board of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.
3 | Use of estimates and judgements |
The preparation of consolidated financial statements in accordanceconformity with United States generally accepted accounting principlesIFRS requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.
Significant estimates and judgements used in the preparation of these consolidated financial statements include: determination of functional currencies; recoverable amount of property and equipment; title to mineral properties; share-based compensation; plan of arrangement – fair value of net assets distributed; and income taxes. Estimates that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:
a) | Determination of functional currencies |
The determination of the Company’s functional currency is a matter of judgment based on an assessment of the specific facts and circumstances relevant to determining the primary economic environment of each individual entity within the group. The Company reconsiders the functional currencies used when there is a change in events and conditions considered in determining the primary economic environment of each entity.
b) | Income taxes |
The Company must make significant estimates in respect of the provision for income taxes and the composition of its deferred income tax assets and deferred income tax liabilities. The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question which may, on resolution in the future, result in adjustments to the amount of current or deferred income tax assets or liabilities, and those adjustments may be material to the Company’s statement of financial position and results of operations.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The determination of the ability of the Company to utilize tax losses carried forward to offset income taxes payable in the future and to utilize temporary differences which will reverse in the future requires management to exercise judgment and make assumptions about the Company’s future performance. Management is required to assess whether the Company is more likely than not to be able to benefit from these tax losses and temporary differences. Changes in the timing of project completion, economic conditions, metal prices and other factors having an impact on future taxable income streams could result in revisions to the estimates of benefits to be realized or the Company’s assessments of its ability to utilize tax losses before expiry. These revisions could result in material adjustments to the consolidated financial statements.
c) | Share-based compensation |
The Company uses the Black-Scholes option pricing model for the valuation of share-based compensation. Option pricing models require the input of the subjective assumptions including expected price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s net loss and reserves.
d) | Plan of arrangement – fair value of net assets distributed |
In May 2017, the Company completed a plan of arrangement (the “Arrangement”) under Section 288 of the Business Corporations Act (British Columbia) (“BCBCA”) pursuant to which Entrée transferred its wholly owned subsidiaries that directly or indirectly hold the Ann Mason Project in Nevada and the Lordsburg property in New Mexico to Mason Resources Corp. (“Mason Resources”). Accounting for this transaction involves critical judgements and estimates in determining the fair value of the net assets distributed. In performing an analysis, the Company relied on Mason Resources’ share price to calculate the fair value of net assets transferred.
4 | Significant accounting policies |
The accounting policies set out below have been applied consistently by the Company and all of its wholly owned subsidiaries and to all periods presented in these consolidated financial statements.
a) | Basis of consolidation |
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s significant subsidiaries are Entrée LLC and Entrée Resources LLC.
Wholly owned subsidiaries are entities in which the Company has direct or indirect control, where control is defined as the investor’s power over an investee with exposure, or rights, to variable returns from the investee and the ability to affect the investor’s returns through its power over the investee. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statements of comprehensive loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intercompany transactions and balances have been eliminated on consolidation.
b) | Foreign currency translation |
The functional currency of Entrée Resources Ltd. is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the statement of financial position date whilenon-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the disclosurestatement of contingentcomprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of comprehensive loss. The functional currency of Entrée Resources Ltd.’s significant subsidiaries is the United States dollar. Upon translation into Canadian dollars for consolidation, monetary assets and liabilities are translated at the exchange rate in effect at the statement of financial position date whilenon-monetary assets and liabilities are translated at historical rates. Revenue and expense items are translated at exchange rates prevailing when such items are recognized in the statement of comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of comprehensive loss.
The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at theperiod-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of shareholders’ deficiency as accumulated other comprehensive loss / income.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
c) | Financial instruments |
Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”), or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on aninstrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Company has opted to measure them at FVTPL.
The following table shows the classification of the Company’s financial instruments:
Financial assets / liabilities | Classification | |
Cash and cash equivalents | FVTPL | |
Investments | FVTPL | |
Receivables | Amortized costs | |
Deposits | Amortized costs | |
Accounts payable and accrued liabilities | Amortized costs | |
Lease liabilities | Amortized costs | |
Loan payable to Oyu Tolgoi LLC | Amortized costs |
Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the dateconsolidated statements of comprehensive loss / income. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in profit or loss.
Financial assets at FVTOCI
Financial assets at FVTOCI are initially recorded at fair value adjusted for transaction costs. Dividends are recognized as income in the consolidated statements of comprehensive loss / income unless the dividend clearly represents a recovery of part of the cost of the investment. Gains or losses recognized on the sale of the equity investment are recognized in other comprehensive loss / income and are never reclassified to profit or loss.
Impairment
An ‘expected credit loss’ impairment model applies which requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the reportedcarrying amount as follows: the carrying amount of revenuesthe asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate, either directly or through the use of an allowance account and expenses during the reportingresulting loss is recognized in profit or loss for the period.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Derecognition
Financial assets
The Company regularly evaluates estimates and assumptions relatedderecognizes financial assets only when the contractual rights to deferred income tax asset valuations, asset impairment, stock-based compensation and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the other sources. The actual results experienced by the Company may differ materially and adverselycash flows from the Company's estimates. Tofinancial assets expire, or when it transfers the extent therefinancial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are material differences between estimates andgenerally recognized in the actual results, future resultsconsolidated statements of operations will be affected.
d) | Cash and cash equivalents |
Cash and cash equivalents includesinclude cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.
e) | Exploration and evaluation assets |
All direct costs related to the acquisition of mineral property interest are capitalized in the period incurred.
Exploration and evaluation costs are charged to operations in the period incurred until such time as it has been determined that a mineral property has proven and probable reserves and the property is economically viable, in which case subsequent evaluation costs incurred to develop a mineral property are capitalized.
f) | Property, plant and equipment |
Mineral property interests and mine development costs
All exploration and evaluation expenditures and property maintenance costs incurred for projects outside the boundary of a known mineral deposit containing proven and probable reserves are expensed as incurred to the date of establishing that property costs are economically recoverable.
Development expenditures are those incurred subsequent to the establishment of economic recoverability and after a number of key development and milestones have been achieved. These milestones include obtaining sufficient financial resources, permits, and licenses to develop the mineral property. Development costs are capitalized and included in the carrying amount of the related property.
Mineral property and mine development costs capitalized are amortized using theunits-of-production method over the estimated life of the proven and probable reserves.
Plant and equipment
Items of plant and equipment are recorded at cost less accumulated depletion and amortization. Cost includes all expenditures incurred to bring assets to the location and condition necessary for them to be operated in the manner intended by management, including estimated decommissioning and restoration costs and, where applicable, borrowing costs. If significant parts of an item of plant and equipment have different useful lives, then they are accounted for as separate items (major components) of plant and equipment.
Depreciation is recorded on a declining balance basis at rates ranging from 20% to 30% per annum.
No depletion and amortization is recorded until the asset is substantially complete and available for its intended use.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Impairment ofnon-current assets
The Company reviews the carrying amounts of itsnon-financial assets every reporting period. If there is any indication that the assets or cash-generating unit (“CGU”) may not be fully recoverable, the recoverable amount of the asset or CGU is estimated in order to determine the extent of the impairment loss, if any.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows to be derived from continuing use of the asset or CGU are discounted to their present value using apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less cost to sell is the amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable, willing parties, less the cost of disposal. When a binding sale agreement is not available, fair value less costs to sell is estimated using a discounted cash flow approach with inputs and assumptions consistent with those at market. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had $22,785,658 in cash at December 31, 2015.
g) | Long-term investments |
Long-term investments in companies in which the Company has voting interests of 20% to 50%or more or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Company'sCompany’s share of the investees'investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the long-term investment accounts.
h) | Decommissioning obligations |
The Company considers mineral rightsrecognizes liabilities for statutory, contractual, legal or constructive obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a provision for a decommissioning obligation is recognized at its net present value in the period in which it is incurred, using a discounted cash flow technique with market-based risk-free discount rates and estimates of the timing and amount of the settlement of the obligation.
Upon initial recognition of the liability, the corresponding decommissioning cost is added to be tangiblethe carrying amount of the related asset. Following initial recognition of the decommissioning obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to significant estimates including the current discount rate, the amount or timing of the underlying cash flows needed to settle the obligation and the requirements of the relevant legal and regulatory framework. Subsequent changes in the provisions resulting from new disturbance, updated cost estimates, changes to estimated lives of operations and revisions to discount rates are also capitalized to the related property, plant and equipment. Amounts capitalized to the related property, plant and equipment are depreciated over the lives of the assets to which they relate. The amortization or unwinding of the discount applied in establishing the net present value of provisions is charged to expense and accordingly,is included within finance costs in the consolidated statement of comprehensive loss / income.
i) | Other provisions |
Provisions are recognized when the Company capitalizes certain costs relatedhas a present obligation (legal or constructive) as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the acquisition of mineral rights.
j) | Taxation |
Income tax expense comprises current and deferred tax. Current tax and deferred taxes are recognized in the consolidated statements of comprehensive loss / income except to the extent that they relate to items recognized directly in equity or in other comprehensive loss / income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Deferred tax is recognized in respect of unused tax losses and credits, as well as temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on enacted or substantively enacted laws at the reporting date.
The Company computes the provision for deferred income taxes under the liability method. A deferred tax asset is recognized for closureunused tax losses, tax credits and removal costs associated withdeductible temporary differences, only to the legal obligations upon retirementextent that it is probable that future taxable profits will be available against which they can be utilized. Future taxable profits are estimated using an income forecast derived from cash flow projections, based on detailedlife-of-mine plans and corporate forecasts. Where applicable, the probability of utilizing tax losses or removal of any tangible long-lived assets wherecredits is evaluated by considering risks relevant to future cash flows, and the expiry dates after which these losses or credits can no longer be utilized.
Deferred tax is not recognized for the initial recognition of any liabilityassets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries, associates and joint arrangements to the extent that it is probable that they will be capitalized as part ofnot reverse in the asset cost and depreciated over its estimated useful life. To date,foreseeable future.
The Company is subject to assessments by various taxation authorities, who may interpret tax legislation differently from the Company has not incurred any asset retirement obligations.
The Company classifiesmust make significant estimates and judgments in respect of its financial instruments as follows:
k) | Share-based compensation |
The Company’s stock option plan allows the Company’s directors, officers, employees, and consultants to acquire shares of the Company. The fair value of options granted is recognized as share-based compensation expense with a corresponding increase in reserves. An individual is limitedclassified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Where options are subject to vesting, each vesting tranche is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. Share-based compensation expense is recognized over the tranche’s vesting period by a charge to profit or loss. For employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for share options granted tonon-employees is recognized over the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted tonon-employees isre-measured on each statement of financial position date.
At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of options that is more likely than notare expected to vest. In situations where equity instruments are issued tonon-employees and some or all of the goods or services received by the entity as consideration cannot be realized.
l) | Loss per share |
Basic net loss per share is computed by dividing the net loss for the period attributableavailable to common stockholdersshareholders by the weighted average number of shares of common stockshares outstanding during the reporting period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately fromcomputed similarly to basic net loss per share asexcept that the conversionweighted average common shares outstanding are increased to include additional shares for the assumed exercise of outstanding stockshare options and share purchase warrants, intoif dilutive. The number of additional common shares would be anti-dilutive. At December 31, 2015,is calculated by assuming that outstanding share options and share purchase warrants were exercised and that the total number of potentially dilutiveproceeds from such exercises were used to acquire common shares of common stock excluded from basic net loss per share was 13,208,000 (December 31, 2014 - 13,779,000; December 31, 2013 - 14,400,500).at the average market price during the reporting periods.
Entrée Resources Ltd.
Notes to conform to the current year's presentation.
For the year ended December 31, 2015 (December 31, 2014 - $107,907;2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
m) | Related party transactions |
Parties are considered related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control or significant influence. A transaction is considered a related party transaction when there is a transfer of resources or obligations between related parties.
n) | Warrants issued in equity financing transactions |
The Company engages in equity financing transactions to obtain the funds necessary to continue operations and explore and evaluate mineral properties. These equity financing transactions may involve issuance of common shares or units. A unit comprises a certain number of common shares and a certain number of share purchase warrants. Depending on the terms and conditions of each equity financing agreement, the warrants are exercisable into additional common shares prior to expiry at a price stipulated by the agreement. Warrants that are part of units are valued based on the relative fair value method and included in share capital with the common shares that were concurrently issued. Warrants that are issued as payment for an agency fee or other transactions costs are accounted for asshare-based payments.
o) | Accounting standards adopted during the year |
Effective January 1, 2019, the Company has adopted IFRS 16 using the modified retrospective application method where the 2018 comparatives are not restated and the cumulative effect of initially applying IFRS 16 has been recorded on January 1, 2019 for any differences identified, including adjustments to opening shareholders’ deficiency balance.
IFRS 16 introduces significant changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of aright-to-use asset (“ROU asset”) and a lease liability at the lease commencement for all leases, except for short-term leases (lease terms of 12 months or less) and leases of low value assets.
In applying IFRS 16 for all leases, the Company (i) recognizes the ROU asset and lease liabilities in the statement of financial position, initially measured at the present value of future lease payments; (ii) recognizes the depreciation of ROU assets and interest on lease liabilities in the consolidated statement of comprehensive loss; and (iii) separates the total amount of cash paid into a principal portion (presented in financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows.
In transitioning to IFRS 16, the Company analyzed its contracts to identify whether they contain a lease arrangement. This analysis identified contracts containing leases that have an increase to the Company’s ROU assets of $0.3 million and lease liabilities of $0.4 million. The difference between the Company’s ROU assets and lease liabilities has been included as an adjustment to opening shareholders’ deficiency balance at January 1, 2019. In addition, $0.1 million of leasehold inducements waswritten-off to opening shareholders’ deficiency balance at January 1, 2019, as the ROU asset was not reduced by any lease incentives received. The incremental borrowing rate for lease liabilities initially recognized on adoption of IFRS 16 was 8%.
New accounting policy for leases under IFRS 16
The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company recognizes a ROU asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, at the commencement of the lease, with the following exceptions: (i) the Company has elected not to recognize ROU assets and liabilities for leases where the total lease term is less than or equal to 12 months, or (ii) for leases of low value. The payments for such leases are recognized in the consolidated statement of comprehensive loss on a straight-line basis over the lease term.
The ROU asset is initially measured based on the present value of lease payments, lease payments made at or before the commencement day, and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset. The ROU asset is subject to testing for impairment if there is an indicator of impairment.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. Lease payments include fixed payments less any lease incentives, and any variable lease payments where variability depends on an index or rate. When the lease contains an extension or purchase option that the Company considers reasonably certain to be exercised, the cost of the option is included in the lease payments. The operating lease obligations as at December 31, 2013 - $146,051) plus accrued interest expense of $279,405 for2018 are reconciled as follows to the recognized lease liabilities as at January 1, 2019:
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2015 (December 31, 2014 - $264,869; December 31, 2013 - $260,453).
(Expressedtabular amounts expressed in United States dollars)
Minimum lease payments under operating leases as of December 31, 2018 | $ | 462 | ||
Effect from discounting at the incremental borrowing rate as of January 1, 2019 | (107) | |||
Lease liabilities recognized as of January 1, 2019 | $ | 355 |
ROU assets are included in property and equipment and the lease liability is included in current portion of other liabilities and other liabilities in the consolidated statement of financial position.
IFRS 15
With the implementation of IFRS 15 – Revenue from Contracts with Customers (“IFRS 15”) as of January 1, 2018, the Company recorded an adjustment of $14.1 million to opening January 1, 2018 deficit and a corresponding adjustment to deferred revenue balance. Adjustment is due to a change in the transaction price for the Company’s streaming agreement as a result of the existence of a significant financing component at a discount rate of 8%.
5 | Plan of arrangement and discontinued operations |
In May 2017, the Company completed the Arrangement under Section 288 of the BCBCA pursuant to which Entrée transferred its wholly owned subsidiaries that directly or indirectly hold the Ann Mason Project in Nevada and the Lordsburg property in New Mexico including $8,843,232 in cash and cash equivalents to Mason Resources in exchange for 77,804,786 common shares of Mason Resources (the “Mason Common Shares”). Mason Resources commenced trading on the TSX on May 12, 2017 under the symbol “MNR”.
As part of the Arrangement, Entrée then distributed its 77,805,786 Mason Common Shares to Entrée shareholders by way of a share exchange, pursuant to which each existing share of Entrée was exchanged for one “new” share of Entrée and 0.45 of a Mason Common Share. Optionholders and warrantholders of Entrée received replacement options and warrants of Entrée and options and warrants of Mason Resources which were proportionate to, and reflective of the terms of, their existing options and warrants of Entrée.
The discontinued operations include three entities transferred to Mason Resources pursuant to the Arrangement: Mason U.S. Holdings Inc.; Mason Resources (US) Inc.; and M.I.M. (U.S.A.) Inc. (collectively the “US Subsidiaries”).
In accordance with International Financial Reporting Interpretations Committee (“IFRIC”) 17, Distribution of5.Non-cash Assets to Owners, the Company recognized theEQUIPMENTspin-off
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||||||||
Office equipment | $ | 57,207 | $ | 46,282 | $ | 10,925 | $ | 81,314 | $ | 60,877 | $ | 20,437 | ||||||||||||
Computer equipment | 276,534 | 231,335 | 45,199 | 363,823 | 290,361 | 73,462 | ||||||||||||||||||
Field equipment | 181,925 | 134,245 | 47,680 | 217,036 | 141,797 | 75,239 | ||||||||||||||||||
Buildings | 40,053 | 34,673 | 5,380 | 48,762 | 40,334 | 8,428 | ||||||||||||||||||
$ | 555,719 | $ | 446,535 | $ | 109,184 | $ | 710,935 | $ | 533,369 | $ | 177,566 |
The Arrangement resulted in a reduction of share capital in the difficultiesamount of determining$11.4 million, being the validityfair value of certain claims as well as the potential for problems arisingnet assets distributed
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Current assets | ||||
Cash | $ | 8,843 | ||
Receivables and prepaids | 137 | |||
8,980 | ||||
Long-term assets | ||||
Equipment | 25 | |||
Mineral property interest | 37,699 | |||
Reclamation deposits and other | 481 | |||
38,205 | ||||
Current liabilities | ||||
Accounts payable and accrued liabilities | (34) | |||
Long-term liabilities | ||||
Deferred income taxes | (2,937) | |||
Carry value of net assets | 44,214 | |||
Fair value of net assets | 11,384 | |||
(32,830) | ||||
Foreign currency translation adjustment | (797) | |||
Loss on the Arrangement | $ | (33,627) |
The net loss from the frequently ambiguous conveyancing history characteristicUS Subsidiaries has been reclassified to net loss from discontinued operations as follows:
2017 | ||||
Expenses | ||||
Exploration | $ | 239 | ||
General and administrative | 19 | |||
Depreciation | 4 | |||
Foreign exchange gain | (86) | |||
Net loss from discontinued operations | $ | 176 |
6 | Investments |
In June 2018, the Company acquired 478,951 common shares of many mineral property interests. Anglo Pacific Group PLC (“Anglo Pacific”), a public company listed on the London Stock Exchange (“LSE”) and the TSX, through the sale of the Cañariaco Project Royalty (Note 9).
In 2019, the Company disposed of all its investments in Anglo Pacific common shares for net proceeds of $1.0 million and realized a $0.1 million gain.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
7 | Property and equipment |
Office equipment | Computer equipment | Field equipment | Buildings | Right-of-use assets | Total | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance, January 1, 2017 | $ | 42 | $ | 175 | $ | 55 | $ | 40 | $ | - | $ | 287 | ||||||||||||
Additions | 50 | 2 | - | 45 | - | 97 | ||||||||||||||||||
Disposals | (40 | ) | (40 | ) | (19 | ) | (43 | ) | - | (117 | ) | |||||||||||||
Foreign exchange | 3 | 12 | 3 | 3 | 21 | |||||||||||||||||||
Balance, December 31, 2017 | 55 | 149 | 39 | 45 | - | 288 | ||||||||||||||||||
Additions | - | 6 | - | - | - | 6 | ||||||||||||||||||
Foreign exchange | (5 | ) | (12 | ) | (4 | ) | (4 | ) | - | (25 | ) | |||||||||||||
Balance at December 31, 2018 | 50 | 143 | 35 | 41 | - | 269 | ||||||||||||||||||
Additions | - | - | - | - | 337 | 337 | ||||||||||||||||||
Disposals | - | (33 | ) | (37 | ) | - | - | (70 | ) | |||||||||||||||
Foreign exchange | 3 | 4 | 2 | 3 | 4 | 16 | ||||||||||||||||||
Balance at December 31, 2019 | $ | 53 | $ | 114 | $ | - | $ | 44 | $ | 341 | $ | 552 | ||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
Balance, January 1, 2017 | $ | (34 | ) | $ | (144 | ) | $ | (30 | ) | $ | (36 | ) | $ | - | $ | (244 | ) | |||||||
Depreciation | (6 | ) | (6 | ) | (2 | ) | (6 | ) | - | (20 | ) | |||||||||||||
Disposals | 33 | 32 | - | 39 | - | 104 | ||||||||||||||||||
Foreign exchange | (1 | ) | (12 | ) | (1 | ) | (2 | ) | - | (16 | ) | |||||||||||||
Balance, December 31, 2017 | (8 | ) | (130 | ) | (33 | ) | (5 | ) | - | (176 | ) | |||||||||||||
Depreciation | (8 | ) | (5 | ) | (2 | ) | (7 | ) | - | (22 | ) | |||||||||||||
Foreign exchange | 1 | 10 | 4 | 1 | - | 16 | ||||||||||||||||||
Balance at December 31, 2018 | (15 | ) | (125 | ) | (31 | ) | (11 | ) | - | (182 | ) | |||||||||||||
Depreciation | (7 | ) | (2 | ) | - | (6 | ) | (90 | ) | (105 | ) | |||||||||||||
Disposals | - | 32 | 33 | - | - | 65 | ||||||||||||||||||
Foreign exchange | (1 | ) | (8 | ) | (2 | ) | (1 | ) | (2 | ) | (14 | ) | ||||||||||||
Balance at December 31, 2019 | $ | (23 | ) | $ | (103 | ) | $ | - | $ | (18 | ) | $ | (92 | ) | $ | (236 | ) | |||||||
Net book value | ||||||||||||||||||||||||
January 1, 2018 | $ | 47 | $ | 19 | $ | 6 | $ | 40 | $ | - | $ | 112 | ||||||||||||
December 31, 2018 | $ | 35 | $ | 18 | $ | 4 | $ | 30 | $ | - | $ | 87 | ||||||||||||
December 31, 2019 | $ | 30 | $ | 11 | $ | - | $ | 26 | $ | 249 | $ | 316 |
8 | Other Assets |
Entrée/Oyu Tolgoi JV Property, Mongolia
The Company has investigated title to its mineral property interests and, except as otherwise disclosed below, to the best of its knowledge, title to the mineral property interests is in good standing.
In October 2004, the Company entered into an arm's-lengtharm’s-length Equity Participation andEarn-In Agreement (the "Earn In Agreement"“Earn-In Agreement”) with Turquoise Hill.Hill Resources Ltd. (“Turquoise Hill”). Under theEarn-In Agreement, Turquoise Hill agreed to purchase equity securities of the Company and was granted the right to earn an interest in what is now the eastern portion of the ShiveeEntrée/Oyu Tolgoi mining licence and all of the Javhlant mining licence (together the "Joint Venture Property").JV Property. Most of Turquoise Hill'sHill’s rights and obligations under theEarn-In Agreement were subsequently assigned by Turquoise Hill to what was then its wholly-owned subsidiary, OTLLC.Oyu Tolgoi LLC (“OTLLC”). The Government of Mongolia subsequently acquired a 34% interest in OTLLC from Turquoise Hill.
On June 30, 2008, OTLLC gave notice that it had completed itsearn-in obligations by expending a total of $35 million on exploration of the Joint VentureEntrée/Oyu Tolgoi JV Property. OTLLC earned an 80% interest in all minerals extracted below asub-surface depth of 560 metres from the Joint VentureEntrée/Oyu Tolgoi JV Property and a 70% interest in all minerals extracted from surface to a depth of 560 metres from the Joint VentureEntrée/Oyu Tolgoi JV Property. In accordance with theEarn-In Agreement, the Company and OTLLC formed a joint venture (the "Entrée-OTLLC Joint Venture"“Entrée/Oyu Tolgoi JV”) on terms annexed to theEarn-In Agreement. Agreement (the “JVA”).
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The portion of the Shivee Tolgoi mining licence outside of the Joint VentureEntrée/Oyu Tolgoi JV Property, ("Shivee West")West, is 100% owned by the Company, but is subject to a right of first refusal by OTLLC.
The conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent to the Investment Agreement (the "Investment Agreement"“Oyu Tolgoi Investment Agreement”) between Turquoise Hill, OTLLC, the Government of Mongolia and Rio Tinto International Holdings Limited. The licences are part of the contract area covered by the Oyu Tolgoi Investment Agreement, although the Company is not a party to the Oyu Tolgoi Investment Agreement. The Shivee Tolgoi and Javhlant mining licences were each issued for a 30 year term and have rights of renewal for two further 20 year terms.
As of December 31, 2015,2019, the Entrée-OTLLC Joint Venturee/Oyu Tolgoi JV had expended approximately $27.8$32.9 million (December 31, 2018 - $31.2 million; December 31, 2017 - $30.1 million) to advance the Joint VentureEntrée/Oyu Tolgoi JV Property. Under the terms of the Entrée-OTLLC Joint Venture,e/Oyu Tolgoi JV, OTLLC contributed on behalf of the Company its required participation amount charging interest at prime plus 2% (Note 7)11).
Investment – Entrée/Oyu Tolgoi JV Property
For accounting purposes, the Company treats its interest in the Entrée/Oyu Tolgoi JV as a 20% equity investment. Historically, all Company expenditures related to its interest in the Entrée/Oyu Tolgoi JV have been expensed as incurred through the statement of comprehensive loss or recognized as part of the Company’s share of the loss of the joint venture.
The Company’s share of the loss of the joint venture was $0.3 million for the year ended December 31, 2015
The Entrée/Oyu Tolgoi JV investment carrying value at December 31, 2019 was $0.1 million (December 31, 2018 - $0.2 million) and was recorded in United States dollars)other assets.
9 | Mineral property interests |
Cañariaco Project Royalty, Peru
In August 2015, the Company acquired from Candente Copper Corp. (TSX:DNT) (“Candente”) a 0.5% net smelter returns royalty (the “Cañariaco Project Royalty”) on Candente’s 100% owned Cañariaco copper project in Peru for a purchase price of $500,000.
In June 2018, the Company sold the Cañariaco Project Royalty to Anglo Pacific, whereby the Company transferred all the issued and outstanding shares of its subsidiaries that directly or indirectly hold the Cañariaco Project Royalty to Anglo Pacific in return for consideration of $1.0 million, payable by the issuance of 478,951 Anglo Pacific common shares. In addition, Entrée retains the right to a portion of any future royalty income received by Anglo Pacific in relation to the Cañariaco Project Royalty (“Royalty Pass-Through Payments”) as follows:
● | 20% of any royalty payment received for any calendar quarter up to and including December 31, 2029; |
● | 15% of any royalty payment received for any calendar quarter commencing January 1, 2030 up to and including the quarter ending December 31, 2034; and |
● | 10% of any royalty payment received for any calendar quarter commencing January 1, 2035 up to and including the quarter ending December 31, 2039. |
In accordance with IFRS, the Company has attributed a value of $nil to the Royalty Pass-Through Payments since realization of the proceeds is contingent upon several uncertain future events not wholly within the control of the Company.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The Company recognized a gain on the sale of the Cañariaco Project Royalty of $0.4 million as outlined below.
2018 | ||||
Consideration received | $ | 1,000 | ||
Mineral property interest cost - Cañariaco Project Royalty | (532 | ) | ||
Transaction costs | (115 | ) | ||
Gain on sale | $ | 353 |
In 2019, the Company disposed of all its investment in Anglo Pacific common shares (Note 6).
Other Properties
The Company also has interests in non-materialother properties in Mongolia (Shivee West property) and Australia the United States and Peru.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of $552,095 (DecemberU.S. dollars, except per share amounts and where indicated)
10 | Leases |
Lease liability
December 31, 2019 | ||||
Lease liability | $ | 304 | ||
Less: current portion | (103 | ) | ||
Long-term portion | $ | 201 | ||
Undiscounted lease payments | ||||
December 31, 2019 | ||||
Less than one year | $ | 123 | ||
One to five years | 216 | |||
More than five years | - | |||
$ | 339 |
Interest expense on the lease liability amounted to $0.0 million for the year ended December 31, 2013 - $437,732) against these properties.
December 31, 2015 | December 31, 2014 | |||||||
Ann Mason | $ | 36,853,690 | $ | 43,966,474 | ||||
Other | 860,802 | 453,064 | ||||||
Total | $ | 37,714,492 | $ | 44,419,538 |
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||||||
US | $ | 3,507,357 | $ | 7,066,997 | $ | 3,940,264 | |||||||
Mongolia | 1,488,452 | 1,672,341 | 1,355,493 | ||||||||||
Other | 165,101 | 315,549 | 807,235 | ||||||||||
Total all locations | $ | 5,160,910 | $ | 9,054,887 | $ | 6,102,992 |
11 | Loan payable to Oyu Tolgoi LLC |
Under the terms of the Entrée-OTLLC Joint Venturee/Oyu Tolgoi JV (Note 6)8), Entrée has elected to have OTLLC will contribute funds to approved joint venture programs and budgets on the Company'sCompany’s behalf. Interest on each loan advance shall accrue at an annual rate equal to OTLLC'sOTLLC’s actual cost of capital or the prime rate of the Royal Bank of Canada, plus two percent (2%) per annum, whichever is less, as at the date of the advance. The loansloan isnon-recourse and will be repayable by the Company monthly from ninety percent (90%) of the Company'sCompany’s share of available cash flow from the Entrée-OTLLC Joint Venture.e/Oyu Tolgoi JV. In the absence of available cash flow, the loansloan will not be repayable. The loans areloan is not expected to be repaid within one year.
During the year ended December 31, 2015
12 | Deferred revenue |
In February 2013, the Company entered into an equity participation and funding agreement (the “2013 Agreement”) with Sandstorm (the "2013 Agreement"Gold Ltd. (“Sandstorm”) thatwhereby Sandstorm provided an upfront deposit (the "Deposit"“Deposit”) from Sandstorm of $40$40.0 million. The Company will use future payments that it receives from its mineral property interests to purchase and deliver metal credits to Sandstorm, in amounts that are indexed to the Company'sCompany’s share of gold, silver and copper production from the Joint Venture Property as follows:
On February 23, 2016, the Company and Sandstorm entered into an Agreement to Amend, whereby the Company refunded 17% of the Deposit ($6.8 million) (the “Refund”) in cash and shares thereby reducing the Deposit to $33.2 million for a 17% reduction in the metal credits that the Company is required to deliver to Sandstorm. At closing on March 1, 2016, the parties entered into an Amended and Restated Equity Participation and Funding Agreement (the “Amended Sandstorm Agreement”). Under the terms of the Amended Sandstorm Agreement, the Company will purchase and deliver gold, silver and copper credits equivalent to:
28.1% of |
21.3% of |
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the Deposit, uponyear ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Upon the delivery of the metal credits, Sandstorm will make a cash payment to the Company equal to the lesser of the prevailing market price and $220 per ounce of gold, $5 per ounce of silver and $0.50 per pound of copper (subject to inflation adjustments). After approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the entire Joint Venturecurrent Entrée/Oyu Tolgoi JV Property the cash payment will increasebe increased to the lesser of the prevailing market price and $500 per ounce of gold, $10 per ounce of silver and $1.10 per pound of copper (subject to inflation adjustments). To the extent that the prevailing market price is greater than the amount of the cash payment, the difference between the two will be credited against the Deposit (the net amount of the Deposit being the "Unearned Balance"“Unearned Balance”).
This arrangement does not required to deliverrequire the delivery of actual metal, and the Company may use revenue from any of its assets to purchase the requisite amount of metal credits.
Under the Amended Sandstorm Agreement, Sandstorm has a right of first refusal, subject to certain exceptions, on future production-based funding agreements. The Amended Sandstorm Agreement also contains other customary terms and conditions, including representations, warranties, covenants and events of default. The initial term of the Amended Sandstorm Agreement is 50 years, subject to successive10-year extensions at the discretion of Sandstorm.
In addition, the Amended Sandstorm Agreement provides that the Company recordedwill not be required to make any further refund of the Deposit if Entrée’s economic interest is reduced by up to and including 17%. If there is a reduction of greater than 17% up to and including 34%, the Amended Sandstorm Agreement provides the Company with the ability to refund a corresponding portion of the Deposit in cash or common shares of the Company or any combination of the two at the Company’s election, in which case there would be a further corresponding reduction in deliverable metal credits. If the Company elects to refund Sandstorm with common shares of the Company, the value of each common share shall be equal to the volume weighted average price for the five (5) trading days immediately preceding the 90th day after the reduction in Entrée’s economic interest. In no case will Sandstorm become a “control person” under the Amended Sandstorm Agreement. In the event an issuance of shares would cause Sandstorm to become a “control person”, the maximum number of shares will be issued, and with respect to the value of the remaining shares, 50% will not be refunded (and there will not be a corresponding reduction in deliverable metal credits) and the remaining 50% will be refunded by the issuance of shares in tranches over time, such that the number of shares that Sandstorm holds does not reach or exceed 20%. All shares will be priced in the context of the market at the time they are issued.
In the event of a full expropriation, the remainder of the Unearned Balance after the foregoing refunds must be returned in cash.
For accounting purposes, the Deposit is accounted for as deferred revenue on the statement of financial position and will recognize amounts in revenue as metal credits are delivered to Sandstorm, which are expected to be delivered until after 2020. As a nonmonetary item, the deferred revenue balance isoriginal Deposit was recorded at the historical basisamount of C$40,032,000 and40.0 million. As a result of the Amended Sandstorm Agreement, the deferred revenue amount was adjusted to reflect the $6.8 million Refund which was recorded at the foreign exchange amount at the date of the Refund resulting in a net balance of C$30.9 million. This amount is subject to foreign currency fluctuations upon conversion to USU.S. dollars at each reporting period.
The $6.8 million Refund was paid with $5.5 million in cash and the issuance of $1.3 million of common shares of the Company. On February 23,March 1, 2016, the Company and Sandstorm entered into an Agreement to Amend the 2013 Agreement (Note 18, Subsequent Events).
The Company has determined that the Deposit contains a significant financing component and, as such, the Company issued 250,000 shares at a fair value of $73,618 to acquire certain claims withinrecognized finance costs on the boundaries of its Ann Mason Project.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
13 | Share capital |
a) | Common shares |
The Company’s authorized share capital consists of unlimited common shares without par value. At December 31, 2019, the Company had 175,470,074 (December 31, 2018 – 174,806,820) shares issued 346,532and outstanding.
b) | Net loss per common share |
Net loss per common share information in these consolidated financial statements is computed by dividing the net loss attributable to common shares by the weighted average number of common shares outstanding during the period. All share options and share purchase warrants outstanding at each period end have been excluded from the weighted average share calculation as they are anti-dilutive.
c) | Plan of arrangement |
In May 2017, the Company completed thespin-out of its Ann Mason Project and Lordsburg property into Mason Resources through the Arrangement under Section 288 of the BCBCA (Note 5). As part of the Arrangement, Entrée shareholders received Mason Common Shares by way of a share exchange, pursuant to which each existing share of Entrée was exchanged for cashone “new” share of Entrée and 0.45 of a Mason Common Share. Optionholders and warrantholders of Entrée received replacement options and warrants of Entrée and options and warrants of Mason Resources which were proportionate to, and reflective of the terms of, their existing options and warrants of Entrée.
d) | Private placement |
In January 2017, the Company closed anon-brokered private placement in two tranches issuing a total of 18,529,484 units at a price of C$0.41 per unit for aggregate gross proceeds of $41,135C$7.6 million. Each unit consisted of one common share of the Company andone-half of one transferable common share purchase warrant (a “Warrant”). Each whole Warrant entitled the holder to acquire one additional common share of the Company at a price of C$0.65 per share(pre-Arrangement price) for a period of 5 years. No commissions or finders’ fees were paid in connection with the private placement. Pursuant to the Arrangement, on May 23, 2017 each Warrant was exchanged for one replacement Entrée Warrant and 0.45 of a Mason Resources transferable common share purchase warrant with the same attributes as the original Warrants. The exercise price of the replacement Entrée Warrants was adjusted based on the exercise of stock options. The fairmarket value recorded when the options were granted of $26,532 has been transferred from additional paid-in capital to common stock on the exercise of the options.
e) | Share options |
The Company provides share-based compensation to its directors, officers, employees, and consultants through grants of share options.
The Company has adopted a stock option plan (the "Plan"“Plan”) to grant options to directors, officers, employees and consultants. Under the Plan, the Company may grant optionsconsultants to acquire up to 10% of the issued and outstanding shares of the Company. Options granted can have a term of up to ten years and an exercise price typically not less than the Company'sCompany’s closing stockshare price on the Toronto Stock ExchangeTSX on the last trading day before the date of grant. Vesting is determined at the discretion of the Board of Directors.
Under the Black-ScholesPlan, an option pricing modelholder may elect to determinetransform an option, in whole or in part and, in lieu of receiving shares to which the fairterminated option relates (the “Designated Shares”), receive the number of shares, disregarding fractions, which, when multiplied by the weighted average trading price of the shares on the TSX during the five trading days immediately preceding the day of termination (the “Fair Value” per share) of the Designated Shares, has a total dollar value equal to the number of stock options granted. For employees,Designated Shares multiplied by the compensation expense is amortized on a straight-line basis overdifference between the requisite service period which approximatesFair Value and the vesting period. Compensation expense for stock options granted to non-employees is recognized overexercise price per share of the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model.
The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stockshare options. TheSince the Company has not paid and does not anticipate paying dividends on its common stock; therefore,shares, the expected dividend yield is assumed to be zero. Companies are required to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of Nilnil in determining the expense recorded in the accompanying Statements of OperationsComprehensive Loss.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and Comprehensive Loss.
Share option transactions are summarized as follows:
Number of share options (000’s) | Weighted average exercise price C$ | |||||||
Outstanding – December 31, 2016* | 12,010 | 0.48 | ||||||
Granted | 1,900 | 0.52 | ||||||
Exercised | (1,899) | 0.32 | ||||||
Cancelled | (1,646) | 0.75 | ||||||
Forfeited/expired | (1,190) | 1.20 | ||||||
Outstanding – December 31, 2017 | 9,175 | 0.38 | ||||||
Granted | 2,290 | 0.55 | ||||||
Exercised | (1,233) | 0.40 | ||||||
Cancelled | (1,522) | 0.41 | ||||||
Outstanding – December 31, 2018 | 8,710 | 0.42 | ||||||
Granted | 2,290 | 0.37 | ||||||
Exercised | (663) | 0.20 | ||||||
Cancelled | (347) | 0.22 | ||||||
Forfeited/expired | (45) | 0.54 | ||||||
Outstanding – December 31, 2019 | 9,945 | 0.43 |
Number of Options | Weighted Average Exercise Price (C$) | |||||||
Balance at December 31, 2012 | 9,223,000 | 1.98 | ||||||
Granted | 7,560,000 | 0.47 | ||||||
Expired | (2,379,500 | ) | 1.80 | |||||
Forfeited | (3,000 | ) | 1.25 | |||||
Balance at December 31, 2013 | 14,400,500 | 1.22 | ||||||
Granted | 2,815,000 | 0.21 | ||||||
Expired | (2,811,500 | ) | 1.99 | |||||
Forfeited | (625,000 | ) | 1.43 | |||||
Balance at December 31, 2014 | 13,779,000 | 0.85 | ||||||
Granted | 1,670,000 | 0.34 | ||||||
Exercised | (346,532 | ) | 0.22 | |||||
Cancelled | (163,468 | ) | 0.25 | |||||
Expired | (1,472,500 | ) | 2.75 | |||||
Forfeited | (258,500 | ) | 0.61 | |||||
Balance at December 31, 2015 | 13,208,000 | 0.60 |
*The weighted average exercise price is before the exercise price adjustment applied pursuant to the Arrangement (Note 5). The exercise prices were adjusted such that the aggregate “in the money” amounts for the outstanding options
At December 31, 2015,2019, the following stockshare options were outstanding:
Number of Options | Exercise Price (C$) | Aggregate Intrinsic Value (C$) | Expiry Date | Number of Options Exercisable | Aggregate Intrinsic Value (C$) | ||||||||||||
200,000 | 3.47 | - | January 4, 2016 | 200,000 | - | ||||||||||||
125,000 | 2.94 | - | March 8, 2016 | 125,000 | - | ||||||||||||
150,000 | 2.05 | - | July 7, 2016 | 150,000 | - | ||||||||||||
100,000 | 2.23 | - | July 15, 2016 | 100,000 | - | ||||||||||||
1,533,000 | 1.25 | - | January 6, 2017 | 1,533,000 | - | ||||||||||||
100,000 | 0.73 | - | June 18, 2017 | 100,000 | - | ||||||||||||
4,480,000 | 0.56 | - | March 15, 2018 | 4,480,000 | - | ||||||||||||
50,000 | 0.32 | - | April 9, 2018 | 50,000 | - | ||||||||||||
150,000 | 0.34 | - | June 27, 2018 | 150,000 | - | ||||||||||||
2,245,000 | 0.30 | - | December 19, 2018 | 2,245,000 | - | ||||||||||||
2,405,000 | 0.21 | 192,400 | December 22, 2019 | 2,405,000 | 192,400 | ||||||||||||
100,000 | 0.38 | - | July 12, 2020 | 50,000 | - | ||||||||||||
500,000 | 0.35 | - | November 15, 2020 | - | - | ||||||||||||
1,070,000 | 0.33 | - | December 3, 2020 | 1,070,000 | - | ||||||||||||
13,208,000 | 192,400 | 12,658,000 | $ | 192,400 |
Number of share options (000’s) |
Exercise price per share C$
| Expiry date | ||
1,300 | 0.28 – 0.32 | July – Dec 2020 | ||
2,210 | 0.33 – 0.36 | Mar – Nov 2021 | ||
1,880 | 0.52 – 0.62 | May – Oct 2022 | ||
2,265 | 0.55 – 0.63 | Feb – Dec 2023 | ||
2,290 | 0.365 | Dec 2024 | ||
9,945 |
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2015 was $192,400 (December 31, 2014 - $Nil;2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
December 31, 2019 | ||||
Weighted average exercise price for exercisable options | C$0.43 | |||
Weighted average share price for options exercised | C$0.41 | |||
Weighted average years to expiry for exercisable options | 3.09 |
For the year ended December 31, 20132019, the total share-based compensation charges relating to 2,290,000 options granted to officers, employees, directors and consultants was $0.3 million (2018 - $Nil)$0.5 million; 2017 - $0.6 million).
The weighted average fair value at date of C$0.30 and 35,000 stockgrant for the options with an exercise price of C$0.21 were exercised. 200,000 stock options with an exercise price of C$3.47 and 125,000 stock options with an exercise price of C$2.94 expired. 137,500 stock options with an exercise price of C$1.25, 410,000 stock options with an exercise price of C$0.56, 165,000 stock options with an exercise price of C$0.30 and 30,000 stock options with an exercise price of C$0.21 were forfeited.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
General and administration | $ | 175,541 | $ | 215,497 | $ | 1,127,621 | ||||||
Exploration | 21,834 | 35,893 | 294,676 | |||||||||
$ | 197,375 | $ | 251,390 | $ | 1,422,297 |
2019 | 2018 | 2017 | ||||||||||
Risk-free interest rate | 1.62% | 1.91% | 1.62% | |||||||||
Expected life of options (years) | 4.7 | 4.7 | 4.6 | |||||||||
Expected volatility | 65% | 64% | 72% | |||||||||
Expected dividend | 0.00% | 0.00% | 0.00% |
December 31, 2015 | December 31, 2014 | December 31, 2013 | ||||||||||
Risk-free interest rate | 0.77 | % | 1.25 | % | 1.30 | % | ||||||
Expected life of options (years) | 4.6 | 4.3 | 4.3 | |||||||||
Annualized volatility | 75 | % | 65 | % | 75 | % | ||||||
Dividend rate | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Fair value per option | $ | 0.15 | $ | 0.09 | $ | 0.19 | ||||||
f) | Share purchase warrants |
At December 31, 20152019, the following share purchase warrants were outstanding:
Number of share purchase warrants (000’s) | Exercise price per share C$ | Expiry date | ||
8,655 | 0.55 | January 10, 2022 | ||
610 | 0.55 | January 12, 2022 |
The share purchase warrants were all issued in United States dollars)
The fair value per share purchase warrant issued during fiscal 2017 was determined to be C$0.37 using the following weighted average assumptions using the Black-Scholes option pricing model:
Share price | C$0.55 | |||
Risk-free interest rate | 1.01% | |||
Expected dividend | 0.00% | |||
Expected life | 5 years | |||
Expected volatility | 72% |
g) | Bonus shares |
In May 2017, the Company issued 100,000 common shares for no cash proceeds pursuant to a grant of employment inducement bonus shares.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
14 | Segmented information |
The Company operates in one business segment being the exploration and evaluation of mineral property interests.
December 31, 2015 | December 31, 2014 | |||||||
Identifiable assets | ||||||||
USA | $ | 38,323,231 | $ | 46,949,474 | ||||
Canada | 22,501,015 | 31,274,058 | ||||||
Other | 838,239 | 1,466,966 | ||||||
$ | 61,662,485 | $ | 79,690,498 |
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
Loss for the year before income taxes | $ | (7,670,672 | ) | $ | (12,725,835 | ) | $ | (13,484,781 | ) | |||
Statutory rate | 26.00 | % | 26.00 | % | 25.75 | % | ||||||
Expected income tax recovery | (1,994,375 | ) | (3,308,717 | ) | (3,472,331 | ) | ||||||
Permanent differences and other | (44,676 | ) | 1,645,947 | (78,811 | ) | |||||||
Difference in foreign tax rates | 247,060 | 1,011,166 | (366,039 | ) | ||||||||
Effect of change in future tax rates | 3,396,564 | - | - | |||||||||
Effect of dissolution of subsidiaries | 6,338,818 | (4,065,731 | ) | - | ||||||||
Change in valuation allowance | (7,783,000 | ) | 660,688 | 1,611,239 | ||||||||
Withholding taxes | - | - | 243,186 | |||||||||
Total income tax expense (recovery) | $ | 160,391 | $ | (4,056,647 | ) | $ | (2,062,756 | ) | ||||
Current income tax expense (recovery) | 218 | (123,255 | ) | 319,112 | ||||||||
Deferred income tax expense (recovery) | 160,173 | (3,933,392 | ) | (2,381,868 | ) | |||||||
Total income taxes | $ | 160,391 | $ | (4,056,647 | ) | $ | (2,062,756 | ) |
2019 | 2018 | |||||||
Canada | ||||||||
Property and equipment | $ | 299 | $ | 83 | ||||
Deposit and other | 10 | 12 | ||||||
$
| 309
|
| $
| 95
|
| |||
Other | ||||||||
Property and equipment | $ | 17 | $ | 4 | ||||
Other assets | 114 | 199 | ||||||
Deposit and other | 2 | - | ||||||
$
| 133
|
| $
| 203
|
|
Other assets in the ‘Other’ category are related to the Company’s investment in the Entrée/Oyu Tolgoi JV Property in Mongolia (Note 8).
15 | Exploration costs |
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||
Deferred income tax assets: | ||||||||
Non-capital loss carry forward | $ | 13,085,490 | $ | 19,506,412 | ||||
Resource expenditures | 4,610,549 | 7,259,556 | ||||||
Equipment | 131,337 | 152,063 | ||||||
Share issue and legal costs | 10,757 | 70,341 | ||||||
Other | 1,925,091 | 5,015,648 | ||||||
19,763,224 | 32,004,020 | |||||||
Valuation allowance | (16,576,867 | ) | (24,634,353 | ) | ||||
Net deferred income tax assets | $ | 3,186,357 | $ | 7,369,667 | ||||
Deferred income tax liabilities: | ||||||||
Foreign exchange on loan | $ | (306,065 | ) | $ | (1,441,120 | ) | ||
Mineral property interests | (6,447,589 | ) | (9,335,671 | ) | ||||
Net deferred income tax liabilities | $ | (6,753,654 | ) | $ | (10,776,791 | ) | ||
Net deferred income tax liabilities | $ | (3,567,297 | ) | $ | (3,407,124 | ) |
2019 | 2018 | 2017 | ||||||||||
Mongolia | $ | 161 | $ | 134 | $ | 181 | ||||||
Other | 12 | 41 | 151 | |||||||||
$ | 173 | $ | 175 | $ | 332 |
16 | Income tax |
2019 | 2018 | 2017 | ||||||||||
Loss for the year before income taxes | $ | (5,524) | $ | (5,198) | $ | (36,511) | ||||||
Statutory rate | 27.00% | 27.00% | 26.00% | |||||||||
Expected income tax recovery | (1,491) | (1,403) | (9,493) | |||||||||
Permanent differences and other | (1,277) | (8,163) | 8,820 | |||||||||
Difference in foreign tax rates | 73 | 140 | (640) | |||||||||
Effect of change in future tax rates | - | (805) | (433) | |||||||||
Change in valuation allowance | 2,695 | 10,231 | 1,674 | |||||||||
Total income tax recovery | $ | - | $ | - | $ | (72) |
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
2019 | 2018 | 2017 | ||||||||||
Current income tax recovery | $ | - | $ | - | $ | (72) | ||||||
Deferred income tax expense | - | - | - | |||||||||
Total income taxes | $ | - | $ | - | $ | (72) | ||||||
The Company’s deferred income tax liability consisted of: |
| |||||||||||
2019 | 2018 | 2017 | ||||||||||
Deferred income tax assets: | ||||||||||||
Non-capital loss carryforward | $ | 11,092 | $ | 9,140 | $ | 9,608 | ||||||
Resource expenditures | 2,647 | 2,507 | 2,763 | |||||||||
Equipment | 272 | 239 | 193 | |||||||||
Share issue and legal costs | 15 | 22 | 31 | |||||||||
Other | 11,957 | 11,355 | 1,113 | |||||||||
25,983 | 23,263 | 13,708 | ||||||||||
Unrecognized tax assets | (25,954) | (23,263) | (13,680) | |||||||||
Net deferred income tax assets | 29 | - | 28 | |||||||||
Deferred income tax liabilities: | ||||||||||||
Foreign exchange on loan | (29) | - | (28) | |||||||||
Net deferred income tax liabilities | $ | (29) | $ | - | $ | (28) | ||||||
Net deferred income tax | $ | - | $ | - | $ | - |
The Company has available for deduction against future taxable incomenon-capital losses of approximately $26,790,000 (2014: $36,340,000)$38.2 million (2018: $31.7 million) in Canada, $660,000 (2014: $690,000) in China, $6,990,000 (2014: $7,160,000)$5.7 million (2018: $5.8 million) in Mongolia $14,880,000 (2014: $23,260,000)and $0.0 million (2018: $0.0 million) in the United States of America, $30,000 (2014: $Nil) in Australia and $580,000 (2014: $520,000) in Peru.Australia. These losses, if not utilized, will expire through 2035.2039. Subject to certain restrictions, the Company also has foreign resource expenditures available to reduce taxable income in future years. Deferred tax benefits which may arise as a result of these losses, resource expenditures, equipment, share issue and legal costs have not been recognized in these consolidated financial statements.
17 | Financial instruments |
a) | Fair value classification of financial instruments |
The fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describesestablishes three levels ofto classify the inputs that may beto valuation techniques used to measure fair value which are:
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2015, the Company had Level 12019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The Company’s financial instruments consisting of cash and cash equivalents, with a fair value of $22,785,658.
The carrying values of receivables and accounts payable and accrued liabilities approximate their fair value due to their short terms to maturity. Cash and cash equivalents are measured at fair value using Level 1 inputs.
The following table summarizes the classification and carrying values of the Company’s financial instruments at December 31, 2019 and 2018:
December 31, 2019 | FVTPL |
Amortized cost
|
Amortized cost
| Total | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 5,380 | $ | - | $ | - | $ | 5,380 | ||||||||
Receivables | - | 26 | - | 26 | ||||||||||||
Deposits | - | 12 | - | 12 | ||||||||||||
Total financial assets | $ | 5,380 | $ | 38 | $ | - | $ | 5,418 | ||||||||
Financial liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | - | $ | - | $ | 72 | $ | 72 | ||||||||
Lease liabilities | - | - | 304 | 304 | ||||||||||||
Loan payable | - | - | 9,035 | 9,035 | ||||||||||||
Total financial liabilities | $ | - | $ | - | $ | 9,411 | $ | 9,411 | ||||||||
December 31, 2018 | FVTPL |
Amortized cost assets)
|
Amortized cost
| Total | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 6,154 | $ | - | $ | - | $ | 6,154 | ||||||||
Investments | 912 | - | - | 912 | ||||||||||||
Deposits | - | 12 | - | 12 | ||||||||||||
Total financial assets | $ | 7,066 | $ | 12 | $ | - | $ | 7,078 | ||||||||
Financial liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | - | $ | - | $ | 346 | $ | 346 | ||||||||
Loan payable | - | - | 8,380 | 8,380 | ||||||||||||
Total financial liabilities | $ | - | $ | - | $ | 8,726 | $ | 8,726 |
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
b) | Financial risk management |
i) | Credit risk |
The Company’s credit risk is management's opinion that theprimarily attributable to cash and cash equivalents and receivables.
The Company islimits its credit exposure on cash and cash equivalents held in bank accounts by holding its key transactional bank accounts and investments with large, highly rated financial institutions.
The Company’s receivables balance was not significant and, therefore, was not exposed to significant credit risk.
The carrying amount of financial assets recorded in the consolidated financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.
ii) | Liquidity risk |
The Company manages liquidity risk by trying to maintain enough cash balances to ensure that it is able to meet its short term and long-term obligations as and when they fall due. Company-wide cash projections are managed centrally and regularly updated to reflect the dynamic nature of the business and fluctuations caused by commodity price and exchange rate movements.
The Company’s operating results may vary due to fluctuation in commodity price, inflation, foreign exchange rates and certain share prices.
iii) | Interest rate risk |
The Company’s interest or credit risks arisingrate risk arises primarily from these financial instruments.the interest received on cash and cash equivalents and on loan payable which is at variable rates (Note 11). As at December 31, 2019, with other variables unchanged, a 1% increase in the interest rate applicable to loan payable would result in an insignificant change in net loss. Deposits are invested on a short-term basis to enable adequate liquidity for payment of operational and exploration expenditures. The fair valueCompany does not believe that it is exposed to material interest rate risk on its cash and cash equivalents.
As at December 31, 2019, the Company has not entered into any contracts to manage interest rate risk.
iv) | Foreign exchange risk |
The functional currency of these financial instruments approximates their carrying values.
As at December 31, 2019, the Company has not entered into contracts to manage foreign exchange risk.
The Company is exposed to currencyforeign exchange risk by incurring certain expendituresthrough the following assets and liabilities:
December 31, 2019
|
December 31, 2018
| |||||||
Cash and cash equivalents | $ | 5,380 | $ | 6,154 | ||||
Investments | - | 912 | ||||||
Accounts payable and accrued liabilities | (72 | ) | (346 | ) | ||||
$ | 5,308 | $ | 6,720 |
As at December 31, 2019, with other variables unchanged, a 10% increase or decrease in currencies other than the Canadian dollar. In addition, as certainvalue of the Company's consolidated subsidiaries' functional currency isUSD against the United States dollar,currencies to which the Company is normally exposed (C$) would result in an insignificant change in net loss.
Entrée Resources Ltd.
Notes to foreign currency translation risk. The Company does not use derivative instruments to reduce this currency risk.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
Accumulated OCI(L), beginning of period: | ||||||||||||
Currency translation adjustment | $ | (2,850,122 | ) | $ | 465,615 | $ | 3,253,019 | |||||
OCL for the period: | ||||||||||||
Currency translation adjustments | $ | (4,928,225 | ) | $ | (3,315,737 | ) | $ | (2,787,404 | ) | |||
Accumulated OCI(L), end of period: | ||||||||||||
Currency translation adjustment | $ | (7,778,347 | ) | $ | (2,850,122 | ) | $ | 465,615 | ||||
For the year ended December 31, 2015. 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
18 | Capital management |
The significant non-cash transactionCompany considers items included in shareholders’ deficiency as capital. The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets which are revised periodically based on the results of its exploration programs, availability of financing, and industry conditions. There are no external restrictions on management of capital.
19 | Supplemental cash flow information |
Note
|
|
2019
|
|
|
2018
|
|
|
2017
|
| |||||
Non-cash investing activities | ||||||||||||||
Acquisition of investments from the sale of asset | 6, 9 | $ | - | $ | 1,000 | $ | - |
20 | Commitments and contingencies |
As at December 31, 2019, the Company had the following commitments:
Total | Less than 1 year | 1 - 3 years | 3-5 years | More than 5 years | ||||||||||||||||
Lease commitments | $ | 339 | $ | 123 | $ | 216 | $ | - | $ | - |
Under the terms of the Amended Sandstorm Agreement, the Company may be subject to a contingent liability if certain events occur (Note 12).
21 | Related party transactions |
The Company’s related parties include key management personnel and directors. Direct remuneration paid to the Company’s directors and key management personnel during the years ended December 31, 2019, 2018 and 2017 are as follows:
2019
|
2018
|
2017
| ||||||||||
Directors’ fees | $ | 132 | $ | 142 | $ | 153 | ||||||
Salaries and benefits | $ | 588 | $ | 1,143 | $ | 929 | ||||||
Share-based compensation | $ | 321 | $ | 461 | $ | 410 |
As of December 31, 2019, included in the accounts payable and accrued liabilities balance on the consolidated statement of financial position is $0.0 million (December 31, 2018 - $0.2 million) due to the Company’s directors and key management personnel.
Upon a change of control of the Company, amounts totaling $1.1 million (December 31, 2018 - $1.0 million) will become payable to certain officers and management personnel of the Company.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Administrative Services Agreement
In May 2017, Mason Resources entered into an Administrative Services Agreement (“ASA”) with Entrée whereby Entrée provided office space, furnishings and equipment, communications facilities and personnel necessary for Mason Resources to fulfill its basicday-to-day head office and executive responsibilities on apro-rata cost-recovery basis. The total amount charged to Mason Resources for the year ended December 31, 2014 consisted of the issuance of 250,000 common shares (December 31, 20132018 was $0.7 million (2017 - Nil) in payment of mineral property acquisitions valued at $73,618 (December 31, 2013 - $Nil) which have been capitalized as mineral property interests.
2016 | 247,906 | ||||||||||
2017 | 71,578 | ||||||||||
$ 319,484 |
In December 2018, Mason Resources terminated the amountASA with Entrée and paid a termination charge of consideration established and agreed to$0.3 million as required by the related party. All services under the agreement have been provided.
Item 19. | Exhibits |
The Registrant hereby certifies that it meets all of the requirements for filing on Form20-F and has duly caused and authorized the undersigned to sight this Annual Report on its behalf.
Entrée Resources Ltd. | ||||
By: | /s/ Stephen Scott | |||
Name: | ||||
Stephen Scott | ||||
Title: | ||||
Chief Executive Officer | ||||
Date: | ||||
March |
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