IMPORTANT NOTICE
This notice is an integral component of the Lookout Hill Feasibility Study Update (LHTR16) attached and should be read in its entirety and must accompany every copy made of the LHTR16. The LHTR16 has been prepared using the Canadian National Instrument (NI) 43-101 Standards of Disclosure for Mineral Projects.
The LHTR16 has been prepared for Entrée Gold Inc (Entrée) by OreWin Pty Ltd (OreWin). The LHTR16 is based on information and data supplied to OreWin by Entrée and other parties and where necessary OreWin has assumed that the supplied data and information are accurate and complete.
The conclusions and estimates stated in the LHTR16 are to the accuracy stated in the LHTR16 only and rely on assumptions stated in the LHTR16. The results of further work may indicate that the conclusions, estimates and assumptions in the LHTR16 need to be revised or reviewed.
OreWin has used its experience and industry expertise to produce the estimates and approximations in the LHTR16. Where OreWin has made those estimates and approximations, it does not warrant the accuracy of those amounts and it should also be noted that all estimates and approximations contained in the LHTR16 will be prone to fluctuations with time and changing industry circumstances.
The LHTR16 should be construed in light of the methodology, procedures and techniques used to prepare the LHTR16. Sections or parts of the LHTR16 should not be read or removed from their original context.
The LHTR16 is intended to be used by Entrée, subject to the terms and conditions of its contract with OreWin. Recognising that Entrée has legal and regulatory obligations, OreWin has consented to the filing of the LHTR16 with Canadian Securities Administrators and its System for Electronic Document Analysis and Retrieval (SEDAR). Except for the purposes legislated under provincial securities laws, any other use of this report by any third party is at that party's sole risk.
OreWin Pty Ltd ACN 165 722 574
Level 2 / 27 Leigh Street Adelaide 5000
P +61 8 8210 5600 E orewin@orewin.com W orewin.com
Title Page
Project Name: | Lookout Hill |
Title: | Lookout Hill Feasibility Study Update |
Location: | Ömnögovi Aimag, Mongolia |
Effective Dates: | |
Effective Date of Technical Report: | 29 March 2016 |
Effective Date of Mineral Resources: | |
Hugo North Extension | 28 March 2014 |
Heruga | 30 March 2010 |
Effective Date of Mineral Reserve: | |
Hugo North Extension | 20 September 2014 |
Qualified Persons:
· | Bernard Peters, BEng (Mining), FAusIMM (201743), employed by OreWin Pty Ltd as Technical Director – Mining, was responsible for the overall preparation of the Lookout Hill Feasibility Study Update and the Mineral Reserves. |
· | Sharron Sylvester, BSc (Geol), RPGeo AIG (10125), employed by OreWin Pty Ltd as Technical Director – Geology, was responsible for the preparation of the Mineral Resources. |
· | Robert M. Cann, MSc (Geol), P.Geo., consultant to and former Vice President, Exploration of Entrée Gold Inc., was responsible for preparation of all sections related to Shivee West. |
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Signature Page
Effective Dates: | |
Effective Dates of the Lookout Hill Feasibility Study Update: | 29 March 2016 |
Effective Dates of Mineral Resource: | |
Hugo North Extension | 28 March 2014 |
Heruga | 30 March 2010 |
Effective Date of Mineral Reserve: | |
Hugo North Extension | 20 September 2014 |
Overall Preparation of the Lookout Hill Feasibility Study Update and Mineral Reserves
/s/Bernard Peters
Bernard Peters, BEng (Mining), FAusIMM (201743), OreWin Pty Ltd
Mineral Resources
/s/Sharron Sylvester
Sharron Sylvester, BSc (Geol), RPGeo AIG (10125), OreWin Pty Ltd
Shivee West
/s/ Robert M. Cann
Robert M. Cann, M.Sc., P.Geo., consultant to and former Vice President, Exploration of Entrée Gold Inc.
iii
TABLE OF CONTENTS
1 | SUMMARY | 1 | |||
1.1 | Project Overview | 1 | |||
1.2 | Project Status | 4 | |||
1.3 | Qualified Persons | 5 | |||
1.4 | Project Location, Access and Ownership | 5 | |||
1.5 | Geology | 9 | |||
1.5.1 | Regional Geology | 9 | |||
1.5.2 | Local Geology | 9 | |||
1.6 | Mineral Resources | 10 | |||
1.6.1 | Hugo North Extension | 12 | |||
1.6.2 | Heruga | 12 | |||
1.6.3 | 2014 CuEq Formula Derivation | 13 | |||
1.7 | Mineral Reserve | 14 | |||
1.8 | Mining Methods | 15 | |||
1.9 | Metallurgy and Process | 17 | |||
1.10 | Project Infrastructure and Power | 18 | |||
1.11 | Transport and Logistics | 20 | |||
1.12 | Concentrate Sales and Marketing | 20 | |||
1.13 | Environmental Studies and Social Impact Assessment | 21 | |||
1.14 | Capital and Operating Costs | 22 | |||
1.15 | Economic Analysis | 23 | |||
1.16 | Alternative Production Cases | 28 | |||
1.17 | Shivee West | 34 | |||
1.18 | Conclusions | 34 | |||
1.19 | Recommendations | 35 | |||
1.19.1 | Development Strategies Oyu Tolgoi Project including the EJV Property, | 35 | |||
1.19.2 | Shivee West | 36 | |||
2 | INTRODUCTION | 37 | |||
2.1 | Issuer for Whom Report Prepared | 37 | |||
2.2 | Terms of Reference and Purpose of Report | 37 | |||
2.3 | Units of Measure and Currency | 37 | |||
2.4 | Sources of Information and Study Participants | 37 | |||
2.5 | Site Visits | 38 | |||
3 | RELIANCE ON OTHER EXPERTS | 39 | |||
4 | PROPERTY DESCRIPTION AND LOCATION | 41 | |||
4.1 | Lookout Hill Location | 41 | |||
4.2 | Lookout Hill Property | 42 | |||
4.2.1 | EJV Property | 45 | |||
4.2.2 | Shivee West | 48 | |||
4.2.3 | Lookout Hill Survey | 48 |
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4.3 | Mining Titles in Mongolia | 48 | |||
4.4 | Strategic Deposits and Investment Agreement | 49 | |||
4.5 | Royalties | 50 | |||
4.6 | Permits | 51 | |||
4.6.1 | Overview - EJV Property | 51 | |||
4.6.2 | Environment Permits – EJV Property | 51 | |||
4.6.3 | Surface Rights and Permits – Shivee West | 55 | |||
4.6.4 | Environmental and Socio-Economic Issues – Shivee West | 55 | |||
4.7 | Other Factors and Risks | 56 | |||
5 | ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY | 58 | |||
5.1 | Access and Infrastructure | 58 | |||
5.1.1 | Regional Centres and Infrastructure | 58 | |||
5.1.2 | Transportation Infrastructure | 59 | |||
5.1.3 | Power Supply | 59 | |||
5.2 | Climate, Hydrology, and Physiography | 60 | |||
5.2.1 | Climate | 60 | |||
5.2.2 | Hydrology and Surface Water Quality | 61 | |||
5.2.3 | Soils | 62 | |||
5.2.4 | Vegetation | 62 | |||
5.2.5 | Fauna | 62 | |||
5.3 | Land Use | 63 | |||
5.3.1 | Protected Areas | 63 | |||
5.4 | Closure and Reclamation | 63 | |||
5.5 | Seismic Zone and Risk | 64 | |||
6 | HISTORY | 66 | |||
7 | GEOLOGICAL SETTING AND MINERALISATION | 67 | |||
7.1 | Regional Geology | 67 | |||
7.2 | Local Geology | 69 | |||
7.2.1 | Overview | 69 | |||
7.3 | Deposit Geology – EJV Property | 80 | |||
7.3.1 | Hugo North Extension | 80 | |||
7.3.2 | Heruga Deposit | 84 | |||
7.3.3 | Ulaan Khud Prospect, EJV Property | 85 | |||
7.4 | Shivee West (100% Entrée) | 86 | |||
7.4.1 | General Geological Setting | 86 | |||
7.4.2 | Devonian Corridor | 88 | |||
7.4.3 | Metamorphism and Structure | 96 | |||
7.4.4 | Geology of the South-east Corner of Shivee West (Devonian Wedge) | 97 | |||
7.4.5 | Geology of the Camp Area | 98 | |||
7.4.6 | Alteration and Mineralisation | 99 | |||
8 | DEPOSIT TYPES | 103 |
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8.1 | Porphyry Copper Geology | 103 | |||
8.2 | Porphyry Mineralisation | 106 | |||
8.3 | Porphyry Alteration | 106 | |||
8.4 | Applicability of the Porphyry Model to Oyu Tolgoi | 107 | |||
8.5 | Low-Sulphidation Epithermal Deposits | 109 | |||
9 | EXPLORATION | 110 | |||
9.1 | Exploration – EJV Property | 114 | |||
9.2 | Exploration – Shivee West, Shivee Tolgoi ML (100% Entrée) | 115 | |||
9.3 | Sampling Methods and Approach | 121 | |||
9.3.1 | Introduction | 121 | |||
9.3.2 | Sampling Methods – EJV Property | 121 | |||
9.3.3 | Sampling Methods – Shivee West | 122 | |||
10 | DRILLING | 125 | |||
10.1 | General | 125 | |||
10.2 | Drilling – EJV Property, Shivee Tolgoi ML | 127 | |||
10.2.1 | Introduction | 127 | |||
10.2.2 | Resource Drilling – Shivee Tolgoi ML | 130 | |||
10.2.3 | 2012 Drilling – Shivee Tolgoi ML | 131 | |||
10.2.4 | Ulaan Khud Diamond Drilling | 131 | |||
10.2.5 | Geotechnical Drilling | 131 | |||
10.3 | Resource Drilling – EJV Property, Javhlant ML | 132 | |||
10.3.1 | Downhole Surveys – Heruga | 132 | |||
10.3.2 | Recoveries and RQD – Heruga | 132 | |||
10.3.3 | Bulk Densities – Heruga | 132 | |||
10.3.4 | Exploration Diamond Drilling – EJV Property, Javhlant ML | 132 | |||
10.4 | Drilling – Shivee West (100% Entrée), Shivee Tolgoi ML, | 135 | |||
11 | SAMPLE PREPARATION, ANALYSES, AND SECURITY | 137 | |||
11.1 | Introduction | 137 | |||
11.2 | EJV Property | 137 | |||
11.2.1 | Sample Preparation and Shipment | 137 | |||
11.2.2 | Analyses | 139 | |||
11.2.3 | QA/QC Programme | 139 | |||
11.2.4 | Standard Reference Materials | 140 | |||
11.2.5 | Blanks | 140 | |||
11.2.6 | Duplicate Samples | 140 | |||
11.2.7 | Sample Security | 141 | |||
11.3 | Databases | 141 | |||
11.4 | Shivee West | 142 | |||
11.4.1 | Drill Core Analyses (SGS Mongolia) | 142 | |||
11.4.2 | RC Chip Sample Analyses – ActLabs | 143 | |||
11.4.3 | Soil Sampling – MMI | 143 |
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11.4.4 | Rock Sampling and Shipping | 144 | |||
11.4.5 | Entrée QA/QC Programme | 144 | |||
12 | DATA VERIFICATION | 146 | |||
12.1 | External Reviews 2002–2012 | 146 | |||
12.2 | Internal QA/QC Reviews 2011–2012 | 146 | |||
13 | MINERAL PROCESSING AND METALLURGICAL TESTING | 148 | |||
13.1 | Summary | 148 | |||
13.2 | Evaluation of Test Work and Process Modelling | 149 | |||
13.2.1 | Grinding Capacity and Flotation Feed Size Modelling | 149 | |||
13.2.2 | Validation of the Minnovex Comminution Predictions | 151 | |||
13.3 | Sample Spatial Representation and Selection Criteria | 152 | |||
13.3.1 | Sampling of Other Reserve Case Orebodies | 152 | |||
13.4 | Mineralogy | 155 | |||
13.4.1 | Availability and Volume of Test Work Conducted | 161 | |||
13.4.2 | Metallurgical Predictions | 165 | |||
13.5 | Concentrate Production, Payables, Penalty and Minor Elements | 168 | |||
13.5.1 | Markets and Product Specification | 170 | |||
13.6 | Future Work | 171 | |||
13.7 | Conclusions | 171 | |||
14 | MINERAL RESOURCE ESTIMATES | 173 | |||
14.1 | Mineral Resources Estimation | 173 | |||
14.1.1 | Databases | 173 | |||
14.1.2 | Geological and Grade Shell Models | 173 | |||
14.1.3 | Grade Capping and Evaluation of Outlier / Extreme Grades | 176 | |||
14.1.4 | Composites | 178 | |||
14.1.5 | Exploratory Data Analysis | 179 | |||
14.1.6 | Estimation Domains | 180 | |||
14.1.7 | Variography | 183 | |||
14.1.8 | Model Setup | 191 | |||
14.1.9 | Results of Estimation | 204 | |||
14.1.10 | Model Validation | 209 | |||
14.1.11 | Mineral Resource Confidence Classification | 213 | |||
14.2 | Assessment of Reasonable Prospects for Economic Extraction | 213 | |||
14.2.1 | Copper Equivalence Formula | 213 | |||
14.2.2 | Derivation of Cut-off Grades | 216 | |||
14.2.3 | CIM Definition of Reasonable Prospects for Eventual Economic Extraction | 217 | |||
14.3 | Tabulating Mineral Resources | 217 | |||
14.3.1 | Mineral Resource Confidence Classification | 217 | |||
14.4 | Mineral Resource Statement | 219 | |||
14.5 | Factors That Could Affect the Mineral Resource Estimates | 221 | |||
14.6 | Reconciliation with 2013 Mineral Resources | 221 |
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15 | MINERAL RESERVE ESTIMATES | 224 | |||
15.1 | Key Mining Assumptions | 226 | |||
15.1.1 | US SEC Industry Guide 7 | 226 | |||
15.1.2 | Bankable Study | 227 | |||
15.1.3 | Test Price for Commodities | 227 | |||
15.1.4 | Primary Environmental Analysis Submission | 228 | |||
16 | MINING METHODS | 230 | |||
16.1 | Mining - Overview | 230 | |||
16.2 | Mine Designs Summary | 230 | |||
16.3 | Underground Geotechnical | 234 | |||
16.3.1 | Subsidence | 234 | |||
16.3.2 | Rock Mechanics | 235 | |||
16.3.3 | Caveability and Fragmentation | 236 | |||
16.3.4 | Ground Control and Support Regimes | 236 | |||
16.4 | Mining Layout | 238 | |||
16.4.1 | Access | 243 | |||
16.4.2 | Apex and Undercut Level | 243 | |||
16.4.3 | Extraction Level | 244 | |||
16.4.4 | Haulage Level | 244 | |||
16.4.5 | Intake Ventilation Level | 244 | |||
16.4.6 | Exhaust Ventilation Level | 244 | |||
16.4.7 | Crusher and Conveying Levels | 245 | |||
16.4.8 | Passes and Ventilation Raises | 245 | |||
16.5 | Mine Support Facilities | 245 | |||
16.5.1 | Surface Facilities | 245 | |||
16.5.2 | Material Handling Design | 246 | |||
16.5.3 | Development Rock Handling | 249 | |||
16.5.4 | Mine Ventilation | 249 | |||
16.5.5 | Equipment Fleet | 250 | |||
16.5.6 | Development | 251 | |||
16.6 | Underground Mine Schedules | 252 | |||
16.6.1 | Underground Production Schedule | 252 | |||
16.6.2 | Processing Schedule | 253 | |||
17 | RECOVERY METHODS | 258 | |||
17.1 | Introduction | 258 | |||
17.2 | Concentrator Production 2013–2015 | 258 | |||
17.3 | LHTR16 Metallurgical Parameters | 259 | |||
17.3.1 | Concentrator Capacity Constraints | 260 | |||
17.3.2 | Blended Processing of Underground Material and Open Pit Plant Feed | 261 | |||
17.4 | Process Design Criteria | 261 | |||
17.4.1 | Equipment Supply | 266 |
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17.5 | Process Plant Description | 266 | |||
17.5.1 | Overview | 266 | |||
17.5.2 | Reagent and Grinding Media Storage and Supply | 270 | |||
17.5.3 | Raw Water Supply | 271 | |||
17.5.4 | Process Water | 271 | |||
17.5.5 | Water Balance | 272 | |||
17.5.6 | Concentrator Power | 272 | |||
18 | PROJECT INFRASTRUCTURE | 273 | |||
18.1 | Introduction | 273 | |||
18.2 | Power | 276 | |||
18.2.1 | External Supply | 276 | |||
18.2.2 | On-site Distribution | 276 | |||
18.3 | Transport and Logistics | 276 | |||
18.4 | Administration and Support | 278 | |||
18.4.1 | Water Management | 279 | |||
18.5 | Tailings Storage Facility | 281 | |||
19 | MARKET STUDIES AND CONTRACTS | 282 | |||
19.1 | Supply and Demand Forecasts | 283 | |||
19.1.1 | Global Copper Smelting Capacity | 283 | |||
20 | ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT | 284 | |||
20.1 | Environmental and Social Impact Assessment | 284 | |||
20.2 | Environmental and Social Baseline | 289 | |||
20.2.1 | Future Project Elements not Directly Addressed in the ESIA | 290 | |||
20.3 | Environmental Impacts and Mitigation Measures | 290 | |||
20.3.1 | Climate and Air Quality | 291 | |||
20.3.2 | Noise and Vibration | 291 | |||
20.3.3 | Topography, Geology, and Topsoils | 292 | |||
20.3.4 | Water Resources | 293 | |||
20.3.5 | Biodiversity and Ecosystem | 294 | |||
20.3.6 | Land Use and Displacement | 295 | |||
20.3.7 | Heritage | 296 | |||
20.3.8 | Communities and Community Members | 297 | |||
20.3.9 | Cumulative Impacts | 298 | |||
20.4 | Health, Safety, Environmental, and Social Management Plans | 298 | |||
20.5 | Water Management | 299 | |||
20.5.1 | Water Conservation | 299 | |||
20.5.2 | Ongoing Work Programmes | 300 | |||
20.6 | Progressive Rehabilitation and Closure Planning | 300 | |||
20.6.1 | Progressive Rehabilitation | 300 | |||
20.6.2 | Closure Planning | 301 | |||
20.6.3 | Post-closure Monitoring | 302 |
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21 | CAPITAL AND OPERATING COSTS | 303 | |||
21.1 | Entrée – OT LLC Earn-In Agreement Costs Terms | 303 | |||
21.2 | Charges to the EJV | 304 | |||
21.3 | Capital and Operating Costs | 306 | |||
22 | ECONOMIC ANALYSIS | 309 | |||
22.1 | Introduction | 309 | |||
22.2 | Model Assumptions | 311 | |||
22.2.1 | Treatment of Cash Flow Items | 311 | |||
22.3 | Project Results – LHTR16 Reserve Case | 314 | |||
22.4 | Cost Sensitivity Analysis | 319 | |||
23 | ADJACENT PROPERTIES | 320 | |||
24 | OTHER RELEVANT DATA AND INFORMATION | 321 | |||
24.1 | Alternative Production Cases | 321 | |||
25 | INTERPRETATIONS AND CONCLUSIONS | 326 | |||
25.1 | Interpretations and Conclusions – EJV Property | 326 | |||
25.1.1 | Interpretations and Conclusions – Ulaan Khud (Airport North) | 327 | |||
25.2 | Interpretations and Conclusions – Shivee West | 328 | |||
26 | RECOMMENDATIONS | 330 | |||
26.1 | Oyu Tolgoi Project Development | 330 | |||
26.2 | Future Strategies | 331 | |||
26.3 | Plant and Infrastructure | 332 | |||
26.3.1 | Concentrator | 332 | |||
26.3.2 | Tailings Storage Facility | 333 | |||
26.4 | Shivee West | 334 | |||
26.4.1 | Precious Metal Exploration – Argo Zone / Zone III | 334 | |||
26.4.2 | Porphyry Copper Exploration | 334 | |||
27 | REFERENCES | 336 | |||
27.1 | References | 336 | |||
27.2 | Shivee West References | 337 | |||
27.3 | Glossary of Symbols and Units | 339 | |||
27.4 | Glossary of Abbreviations and Terms | 341 |
TABLES
Table 1.1 | EJV LHTR16 Reserve Case Financial Results | 3 |
Table 1.2 | Entrée–OT LLC Joint Venture Mineral Resource Summary | 11 |
Table 1.3 | EJV Mineral Reserve, 20 September 2014 | 14 |
Table 1.4 | LHTR16 and LHTR13 Probable Mineral Reserve Comparison | 15 |
Table 1.5 | Hugo North (including Hugo North Extension) Cave Dimensions | 16 |
Table 1.6 | EJV Average Operating Cost Summary | 22 |
Table 1.7 | EJV Capital Expenditure | 23 |
Table 1.8 | EJV Unit Operating Costs by Copper Production | 23 |
Table 1.9 | Summary Production and Financial Results | 24 |
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Table 1.10 | Entrée Financial Results — Discount Rate Sensitivity — LHTR16 Reserve Case | 25 |
Table 4.1 | Licence Details – Lookout Hill | 43 |
Table 4.2 | ML Boundary Coordinates – EJV Property | 47 |
Table 4.3 | ML Boundary Coordinates – Shivee West (100% Entrée) | 48 |
Table 7.1 | Major Units of the Alagbayan Group | 74 |
Table 7.2 | Major Units of the Sainshandhudag Formation | 75 |
Table 7.3 | Major Intrusive Rock Units | 76 |
Table 7.4 | Major Structures | 77 |
Table 7.5 | Legend for Figure 7.7 (after Panteleyev, 2005, 2006, 2007, 2008, 2010, and 2011) | 91 |
Table 9.1 | 2002–2015 Exploration Summary on EJV Property and Shivee West | 110 |
Table 9.2 | 2012 Argo Trench Sampling Summary | 120 |
Table 10.1 | Drilling Summary – Lookout Hill | 126 |
Table 10.2 | 2011 RC Drilling Results – Zone III and Argo Zone | 136 |
Table 11.1 | Suggested QC Programme for RC Drilling | 145 |
Table 13.1 | Number of Comminution Samples per Orebody | 152 |
Table 13.2 | Minnovex Comminution Test Result Density for Reserve Case Orebodies | 153 |
Table 13.3 | Comparison of Mean Values for Hugo North (including Hugo North Extension) Comminution Indices | 155 |
Table 13.4 | New Flotation Composite Selections for Hugo North (including Hugo North Extension) | 161 |
Table 13.5 | Optimum Primary Grind Size for Each Ore Type (P80, µm) | 162 |
Table 13.6 | Base Data Template 31 – Copper Recovery | 166 |
Table 13.7 | Base Data Template 31 – Gold Recovery | 166 |
Table 13.8 | Base Data Template 31 – Silver Recovery | 166 |
Table 13.9 | Base Data Template 31 – Copper Assay in Concentrate | 166 |
Table 13.10 | Plant Grinding Throughput Rates | 167 |
Table 13.11 | Non-payable, Non-penalty Component Analyses Based on 5.0 kt Shipments | 169 |
Table 14.1 | Database Close-off Dates | 173 |
Table 14.2 | Surfaces and Lithology Solids in Geological Models | 174 |
Table 14.3 | Fault Surfaces in Geological Models | 174 |
Table 14.4 | Grade Shell Construction Parameters | 175 |
Table 14.5 | Domain Codes | 176 |
Table 14.6 | Grade Caps Applied to Cu, Au, and Ag Grade Domains – Hugo North and Hugo North Extension Area | 177 |
Table 14.7 | Outlier Restrictions (High Yield Restrictions) Applied to Cu, Au, and Ag Grade Domains – Hugo North and Hugo North Extension Area | 177 |
Table 14.8 | Outlier Restrictions / Grade Caps – Heruga | 178 |
Table 14.9 | Hugo North and Hugo North Extension Intra-Domain Boundary Contacts – Copper | 181 |
Table 14.10 | Hugo North and Hugo North Extension Intra-Domain Boundary Contacts – Gold | 182 |
Table 14.11 | Copper Correlogram Parameters, Outside 0.6% Cu Grade Shell, Hugo North | 185 |
Table 14.12 | Copper Correlogram Parameters, Inside 0.6% Cu Grade Shell and Outside 1.0% Cu Grade Shell, Hugo North | 186 |
Table 14.13 | Copper Correlogram Parameters, Inside 1.0% Cu Grade Shell, Hugo North | 187 |
Table 14.14 | Copper Correlogram Parameters, Inside BiGd, Hugo North | 188 |
Table 14.15 | Gold Correlogram Parameters, Outside 0.3 g/t Au Grade Shell, Hugo North | 188 |
Table 14.16 | Gold Correlogram Parameters, Inside 0.3 g/t Au Grade Shell and Outside 1.0 g/t Au Grade Shell, Hugo North | 189 |
xi
Table 14.17 | Gold Correlogram Parameters, Inside 1.0 g/t Au Grade Shell, Hugo North | 189 |
Table 14.18 | Gold Correlogram Parameters, Inside BiGd, Hugo North | 190 |
Table 14.19 | Copper Search Parameters, Outside 0.6% Cu Grade Shell, Hugo North and Hugo North Extension | 193 |
Table 14.20 | Copper Search Parameters, Inside 0.6% Cu Grade Shell and Outside 1.0% Cu Grade Shell, Hugo North and Hugo North Extension | 195 |
Table 14.21 | Copper Search Parameters, Inside 1.0% Cu Grade Shell, Hugo North and Hugo North Extension | 197 |
Table 14.22 | Copper Search Parameters, Inside BiGd, Hugo North and Hugo North Extension | 199 |
Table 14.23 | Gold Search Parameters, Outside 0.3 g/t Au Grade Shell, Hugo North and Hugo North Extension | 200 |
Table 14.24 | Gold Search Parameters, Inside 0.3 g/t Au Grade Shell and Outside 1.0 g/t Au Grade Shell, Hugo North and Hugo North Extension | 201 |
Table 14.25 | Gold Search Parameters, Inside 1.0 g/t Au Grade Shell, Hugo North and Hugo North Extension | 202 |
Table 14.26 | Gold Search Parameters, Inside BiGd, Hugo North and Hugo North Extension | 203 |
Table 14.27 | Grade and Tonnage Calculations at Variable Copper Equivalent Cut-off Grades – Hugo North Extension | 205 |
Table 14.28 | Grade and Tonnage Calculations at Variable Copper Equivalent Cut-off Grades – Heruga | 208 |
Table 14.29 | Global Model Mean Grade Values by Domain in Each Zone (Nearest Neighbour vs. Ordinary Kriging Estimates) | 210 |
Table 14.30 | Copper Equivalence Assumptions and Calculation based on Average Grades – Hugo North Extension | 215 |
Table 14.31 | Copper Equivalence Assumptions and Calculation based on Average Grades – Heruga | 216 |
Table 14.32 | EJV Mineral Resources (>0.37% CuEq Cut-off) | 220 |
Table 14.33 | EJV Property Mineral Resource Reconciliation, LHTR16 and LHTR13 – Hugo North Extension | 222 |
Table 14.34 | EJV Property Mineral Resource Reconciliation, LHTR16 and LHTR13 – Heruga | 223 |
Table 15.1 | EJV Mineral Reserve, 20 September 2014 | 224 |
Table 15.2 | LHTR16 and LHTR13 Probable Mineral Reserve Comparison | 225 |
Table 15.3 | Metal Price Summary | 228 |
Table 16.1 | Hugo North (including Hugo North Extension) Cave Dimensions | 232 |
Table 16.2 | Hugo North (including Hugo North Extension) Lift 1 Development | 232 |
Table 16.3 | In Situ Stress Regime | 236 |
Table 16.4 | Shaft Station Depths | 243 |
Table 16.5 | Development Rate Summary | 251 |
Table 16.6 | Main C2S Decline Development Rates | 252 |
Table 16.7 | LHTR16 Reserve Case Production Schedule – Total Oyu Project (OT LLC and EJV) | 256 |
Table 16.8 | EJV Reserve Case Production Schedule | 257 |
Table 17.1 | Base Data Template 31 – Copper Recovery | 259 |
Table 17.2 | Base Data Template 31 – Gold Recovery | 259 |
Table 17.3 | Base Data Template 31 – Silver Recovery | 259 |
Table 17.4 | Base Data Template 31 – Copper in Concentrate | 260 |
Table 17.5 | Base Data Template 31 – Arsenic and Fluorine in Concentrate | 260 |
Table 17.6 | Plant Throughput Rates | 260 |
xii
Table 17.7 | Primary Grind and Regrind Target Size Ranges | 263 |
Table 17.8 | Flotation Cell Design Criteria | 263 |
Table 17.9 | Concentrate Thickening and Storage Design Criteria | 265 |
Table 18.1 | Summary of Infrastructure Facilities | 273 |
Table 20.1 | Baseline and Core DEIA Studies for the Oyu Tolgoi Project | 286 |
Table 20.2 | Supplementary DEIA Studies for Oyu Tolgoi | 287 |
Table 21.1 | EJV Operating Expenditures – Hugo North Extension Lift 1 | 306 |
Table 21.2 | EJV Expansion and Sustaining Capital Expenditure | 307 |
Table 22.1 | EJV LHTR16 Reserve Case Financial Results | 310 |
Table 22.2 | EJV Unit Operating Costs by Copper Production | 311 |
Table 22.3 | Treatment of Entrée Cash Flow Items | 313 |
Table 22.4 | LHTR16 Reserve Case Financial Results – Entrée – Discount Rate Sensitivity | 314 |
Table 22.5 | LHTR16 Reserve Case Operating Costs and Revenues – OT LLC and EJV | 317 |
Table 22.6 | LHTR16 Reserve Case Cash Flow (Undiscounted) – EJV and Entrée | 318 |
Table 22.7 | Metal Price Sensitivity Analysis – Entrée LHTR16 Reserve Case | 319 |
Table 22.8 | LHTR16 Reserve Case Costs Sensitivity Analysis | 319 |
Table 27.1 | Table of Symbols and Units | 339 |
FIGURES
Figure 1.1 | LHTR16 Reserve Case Mining Areas | 2 |
Figure 1.2 | Lookout Hill – Land Tenure | 7 |
Figure 1.3 | Idealised Long-Section of Oyu Tolgoi including Hugo North Extension and Heruga Deposits (looking west) | 8 |
Figure 1.4 | Hugo North Lift 1 Mine Design | 16 |
Figure 1.5 | Basic Oyu Tolgoi Flowsheet – Phase 1 | 17 |
Figure 1.6 | Site Plan | 19 |
Figure 1.7 | Oyu Tolgoi Regional Road and Rail | 20 |
Figure 1.8 | Processing by Source — LHTR16 Reserve Case | 26 |
Figure 1.9 | Copper Production — LHTR16 Reserve Case | 26 |
Figure 1.10 | Gold Production — LHTR16 Reserve Case | 27 |
Figure 1.11 | Silver Production — LHTR16 Reserve Case | 27 |
Figure 1.12 | EJV Concentrate and Metal Production — LHTR16 Reserve Case | 28 |
Figure 1.13 | Entrée Cumulative Undiscounted Cash Flow — LHTR16 Reserve Case | 28 |
Figure 1.14 | Alternative Production Cases Mining Areas | 30 |
Figure 1.15 | Oyu Tolgoi Development Options | 31 |
Figure 1.16 | Alternative Production LOM 140 | 32 |
Figure 1.17 | Alternative Production LOM 260 | 33 |
Figure 1.18 | Alternative Production LOM 350 | 33 |
Figure 4.1 | Regional Project Location Map – Lookout Hill | 42 |
Figure 4.2 | Local Project Map – Lookout Hill | 44 |
Figure 4.3 | Land Tenure Map – Lookout Hill | 46 |
Figure 7.1 | Regional Setting, Gurvansaikhan Terrane | 68 |
Figure 7.2 | Regional Structural Setting, Gurvansaikhan Terrane | 68 |
Figure 7.3 | Project Stratigraphic Column | 70 |
Figure 7.4 | Project Geology Plan | 71 |
Figure 7.5 | Project Geology Plan Legend | 72 |
Figure 7.6 | General Geology of Shivee West, Shivee Tolgoi ML | 87 |
Figure 7.7 | Geology of the Devonian Corridor – Shivee West, Shivee Tolgoi ML | 90 |
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Figure 7.8 | Zone III / Argo Zone Compilation – Shivee West | 102 |
Figure 8.1 | Schematic Section of Porphyry-Copper Deposit | 105 |
Figure 8.2 | Schematic Section Showing Typical Alteration Assemblages | 107 |
Figure 9.1 | Exploration Targets Map – Lookout Hill Property | 116 |
Figure 9.2 | Trench and Drillhole Locations – Zone III | 119 |
Figure 9.3 | Trench and Drillhole Locations – Argo Zone | 120 |
Figure 10.1 | Drillhole Locations – EJV Property | 129 |
Figure 10.2 | Section 4,768,100 mN – Hugo North Extension, Shivee Tolgoi ML | 130 |
Figure 10.3 | Drillhole Locations – EJV Property, Shivee Tolgoi ML | 131 |
Figure 10.4 | Drillhole Locations – EJV Property, Javhlant ML | 133 |
Figure 10.5 | Section 4,759,500 mN, Looking North – Heruga Deposit | 134 |
Figure 13.1 | Cumulative Frequency Distributions of SAG Power Index, Modified Bond Index, TPUT, and P80 of Flotation Feed at 100% through Phase 1 Circuits – Hugo North Samples | 150 |
Figure 13.2 | Sample Locations for New Hugo North Samples, Compared to Previous Comminution Samples (in red) | 154 |
Figure 13.3 | Presentation of QEMSCAN Results for 20 Hugo North Composites | 157 |
Figure 13.4 | Presentation of QEMSCAN Results – 12 Central Zone Composites | 160 |
Figure 14.1 | Copper Grade Shells and Gold Grade Shells – Hugo North, and Hugo North Extension | 183 |
Figure 14.2 | Grade-Tonnage Curves at Various Copper Equivalent Cut-off Grades – Hugo North Extension | 207 |
Figure 14.3 | Grade-Tonnage Curves at Various Copper Equivalent Cut-off Grades – Heruga | 209 |
Figure 14.4 | Comparison of Hugo North Ordinary Kriged and Nearest Neighbour Cu Estimates (uncapped) and 5.0 m Cu Composites with Depth (Va+Ign+Qmd+BiGd) | 211 |
Figure 14.5 | Comparison of Hugo North Ordinary Kriged and Nearest Neighbour Au Estimates (uncapped) and 5.0 m Au Composites with Depth (Va+Ign+Qmd+BiGd) | 212 |
Figure 16.1 | LHTR16 Reserve Case Mining Areas | 230 |
Figure 16.2 | Hugo North (including Hugo North Extension) Lift 1 Mine Design | 231 |
Figure 16.3. | Summary of Mine Design Elements – Hugo North Lift 1 | 233 |
Figure 16.4 | Cross Section through Production Levels | 234 |
Figure 16.5 | Cave Subsidence Predictions | 235 |
Figure 16.6 | Hugo North Lift 1 Footprint Layout | 238 |
Figure 16.7 | Illustration of Panel 0 and Panel 1 Boundary | 240 |
Figure 16.8 | Cave Section along Extraction Drift | 241 |
Figure 16.9 | Undercut and Cave Front | 241 |
Figure 16.10 | Extraction Level Layout Parameters | 242 |
Figure 16.11 | Underground Conveying System Layout – Conveyor to Surface | 247 |
Figure 16.12 | Underground Conveying System Layout – Crusher Stations and Shaft 2 | 248 |
Figure 16.13 | Hugo North and Hugo North Extension Lift 1 Shafts and Ventilation Raises | 250 |
Figure 16.14 | Hugo North Lift 1 Total Underground Material Movement | 253 |
Figure 16.15 | Ore Processing Schedule by Source | 254 |
Figure 16.16 | LHTR16 Reserve Case Copper Production | 254 |
Figure 16.17 | LHTR16 Reserve Case Gold Production | 255 |
Figure 16.18 | LHTR16 Reserve Case Silver Production | 255 |
Figure 17.1 | Basic Oyu Tolgoi Concentrator Flowsheet – Phase 1 | 267 |
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Figure 17.2 | Oyu Tolgoi Project Concentrator - Overall Block Diagram on Completion of Phase 2 | 269 |
Figure 18.1 | Oyu Tolgoi Project Site Plan | 275 |
Figure 18.2 | Oyu Tolgoi Regional Road and Rail | 278 |
Figure 18.3 | Tailings Storage Facility (TSF) – General Arrangement of Cells 1 and 2 | 281 |
Figure 22.1 | LHTR16 Reserve Case Processing – OT LLC and EJV | 314 |
Figure 22.2 | LHTR16 Reserve Case EJV Concentrate and Metal Production | 315 |
Figure 22.3 | LHTR16 Reserve Case Cumulative Cash Flow to Entrée – After Financing (Undiscounted) | 316 |
Figure 22.4 | Cost Sensitivity Analysis – After-Tax NPV8 to Entrée | 319 |
Figure 24.1 | Alternative Production Cases Mining Areas | 322 |
Figure 24.2 | Oyu Tolgoi Development Options | 323 |
Figure 24.3 | Alternative Production LOM 140 | 324 |
Figure 24.4 | Alternative Production LOM 260 | 325 |
Figure 24.5 | Alternative Production LOM 350 | 325 |
Figure 24.5 | Alternative Production LOM 350 | 325 |
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1 | SUMMARY |
1.1 | Project Overview |
Entrée Gold Inc. (Entrée) retained OreWin Pty Ltd (OreWin) to prepare a Technical Report on the 62,920 ha Lookout Hill property (Lookout Hill), Mongolia, which includes the Hugo North Extension copper-gold and Heruga copper—gold—molybdenum deposits.
Lookout Hill is located in the Gobi region of southern Mongolia, and includes two mining licences (MLs) – Shivee Tolgoi ML and Javhlant ML. Lookout Hill completely surrounds the 8,490 ha Oyu Tolgoi ML, owned 100% by Oyu Tolgoi LLC (OT LLC). The eastern portion of the Shivee Tolgoi ML, which hosts the Hugo North Extension of the Hugo Dummett copper–gold deposit, and the Javhlant ML, which hosts the Heruga copper–gold–molybdenum deposit (together, the EJV Property), are subject to a joint venture between Entrée and OT LLC (the Entrée–OT LLC Joint Venture, or the EJV). The 23,114 ha western portion of the Shivee Tolgoi ML (Shivee West) is 100% owned by Entrée but is subject to a first right of refusal by OT LLC.
The Hugo North Extension and Heruga deposits respectively form the northern-most and southern-most parts of the Oyu Tolgoi project, which is a series of world-class, porphyry-style deposits containing copper, gold, silver and molybdenum. The Mineral Resources stretch over 12 km, from the Hugo North Extension deposit on the EJV Property in the north, through the Hugo North, Hugo South, Southern Oyu Tolgoi (SOT), and northern extension of the Heruga deposit on OT LLC's Oyu Tolgoi ML, to the Heruga deposit on the EJV Property in the south.
Under the terms of the EJV, Entrée has a 20% carried interest in mineralisation extracted from the Hugo North Extension and Heruga deposits. OT LLC has the remaining 80% interest. OT LLC is owned 66% by Turquoise Hill Resources Ltd. (TRQ) and 34% by the Government of Mongolia (GOM). OT LLC is the appointed manager under the terms of the Entrée–OT LLC Joint Venture. However, pursuant to various agreements between the Rio Tinto Group (Rio Tinto), TRQ, and OT LLC, Rio Tinto is responsible for both management and the building and operation of the Oyu Tolgoi project, including the Hugo North Extension and Heruga deposits on the EJV Property, and all exploration operations on behalf of OT LLC, including exploration on the EJV Property.
This report is titled the Lookout Hill Feasibility Study Update (LHTR16). LHTR16 updates the Technical Report 2013 on the Lookout Hill Property (LHTR13) released by Entrée in March 2013. LHTR16 was prepared by OreWin for Entrée and is based on information contained within the Oyu Tolgoi Feasibility Study 2014 (OTFS14) completed in July 2014 by OT LLC and the 2014 Oyu Tolgoi Technical Report (2014 OTTR) released by TRQ in October 2014 and also prepared by OreWin. The OTFS14 has yet to be updated by OT LLC and is the most current completed feasibility study work available.
Unless otherwise indicated, any reference in this report to Hugo North, Hugo Dummett, Lift 1, or Lift 2 is inclusive of Hugo North Extension.
The EJV Property Mineral Reserve is contained within the Hugo North Extension of the Lift 1 Block Cave and will be mined as part of the Oyu Tolgoi project. As such, the EJV Property Mineral Reserve is a subset of the total Oyu Tolgoi project Mineral Reserves reported in the 2014 OTTR, which assumes processing of 1.5 billion tonnes of ore, mined from OT LLC's SOT open pit and from Lift 1 Hugo North block cave, including Hugo North Extension. The mining areas included in the LHTR16 Reserve Case are shown schematically in Figure 1.1. The Mineral Reserves are based on mine planning work prepared by OT LLC. This work was reviewed and has been used as the basis for reporting the current Mineral Reserves.
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Entrée also has significant Indicated and Inferred mineral resources in the Hugo North Extension deposit (updated from resources reported in LHTR13) and significant Inferred mineral resources in the Heruga deposit (unchanged from previous studies). Both Hugo North Extension and Heruga are large, bulk mineable underground deposits that would be mined by multiple block caves requiring separate future development decisions based on then prevailing economic conditions and the development experience obtained from developing and operating the initial phases of the Oyu Tolgoi project. The block caves will have a nominal maximum production of 95 ktpd and any production shortfall will be supplemented by feed from the OT LLC SOT open pit. Construction of the SOT open pit mine, supporting infrastructure and a nominal 100 ktpd concentrator is complete and the plant is operating at name-plate capacity or greater.
OT LLC continues engineering studies for the Oyu Tolgoi project, including the EJV Property. These will include examining all production scenarios and associated expansion options. OT LLC plans a focused and structured review of the study work to be used in the capital approvals process as the operation develops. OreWin believes that further design work could identify opportunities to improve project economics via cost reductions and mine plan optimisation. This may result in further positive changes to the EJV development schedule that could bring potential development of EJV mineral resources forward.
Figure 1.1 | LHTR16 Reserve Case Mining Areas |
Figure by OreWin 2014
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A summary of the financial results for the LHTR16 Reserve Case is shown in Table 1.1. The financial analysis has been prepared using the following long-term metal price estimates: copper at $3.08/lb; gold at $1,304/oz and silver at $21.46/oz (in LHTR16, currency is expressed in US dollars unless otherwise noted). The after-tax NPV at 8% discount rate (NPV8) attributable to Entrée for the LHTR16 Reserve Case is $106 M. OTFS14 assumed that the timing for the restart of the underground mine development would occur at the commencement of 2015, and even though this did not occur, the economic analysis of the Mineral Reserve remains valid and the costs and revenues are delayed by the same timing.
Table 1.1 | EJV LHTR16 Reserve Case Financial Results |
Description | Units | Total |
Total OT Processed | bt | 1.5 |
EJV Property Results | ||
EJV Processed | Mt | 34.8 |
NSR | $/t | 100.57 |
Cu Grade | % | 1.59 |
Au Grade | g/t | 0.55 |
Ag Grade | g/t | 3.72 |
Copper Recovered | Mlb | 1,121 |
Gold Recovered | koz | 519 |
Silver Recovered | koz | 3,591 |
Total Cash Costs After Credits | $/lb Payable Copper | 0.99 |
NPV (8%) After Tax (Entrée) | $M | 106 |
NPV (8%) Before Tax (Entrée) | $M | 142 |
1. | Metal prices used for calculating the Hugo North Extension underground Net Smelter Return (NSR) are as follows: copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz, all based on long-term metal price forecasts at the beginning of the mineral reserve work. The analysis indicates that the mineral reserve is still valid at these metal prices. |
2. | The NSR has been calculated with assumptions specific to Hugo North Extension for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties. |
3. | The block cave shell was defined using a NSR cut-off of $15/t NSR. |
4. | For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. This includes low grade Indicated mineral resources and Inferred mineral resources, which has been assigned a zero grade and treated as dilution. |
5. | Only Measured mineral resources were used to report Proven mineral reserves and only Indicated mineral resources were used to report Probable mineral reserves. |
6. | EJV is the Entrée—OT LLC Joint Venture. The EJV includes a portion of the Shivee Tolgoi ML and all of the Javhlant ML. Both the Javhlant ML and the eastern portion of the Shivee Tolgoi ML are held by Entrée for the EJV. The EJV Property is operated by Rio Tinto on behalf of OT LLC. Entrée has a 20% interest in the mineralisation extracted from the EJV Property and OT LLC has an 80% interest. |
7. | The base case financial analysis has been prepared using the following current long term metal price estimates: copper at $3.08/lb; gold at $1,304/oz; and silver at $21.46/oz. |
8. | The mineral reserves reported are not additive to the mineral resources. |
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1.2 | Project Status |
The EJV Property is an integral part of the development of the Hugo North underground mine at Oyu Tolgoi, the construction of which is a separate mining project expected to be approved by stakeholders in 2016. During 2015, a number of important milestones were reached towards achieving this approval. Finalised timing for the restart to underground construction and the realisation of value from the EJV Property remains dependent upon the finalisation of an updated feasibility study, receipt of all necessary permits and a definitive Notice to Proceed to be issued by the boards of Rio Tinto, TRQ and OT LLC. Under the terms of the project finance, once a Notice to Proceed is issued, the finance facility could be drawn down in full to support underground development.
In August 2013, development of the underground mine was suspended to allow matters between OT LLC, Rio Tinto, TRQ and the GOM to be resolved. In May 2015, the GOM, OT LLC, TRQ, and Rio Tinto signed the Underground Mine Development and Financing Plan (UDP). The UDP provides a path forward for restarting underground development and resolves key outstanding Oyu Tolgoi shareholder issues, including tax matters, a 2% NSR royalty acquired by TRQ from BHP Billiton in 2003, the Oyu Tolgoi 5% sales royalty calculation, management services payments and the sourcing of power for Oyu Tolgoi from within Mongolia.
In August 2015, TRQ announced that Oyu Tolgoi LLC had filed revised schedules for the Statutory Feasibility Study with the Mongolian Minerals Council. The filing also aligned the Statutory Feasibility Study with the UDP. The Mongolian Minerals Council had already tentatively accepted the Statutory Feasibility Study filed in March 2015, pending a revision of its schedules and alignment with the UDP. TRQ has said that the Statutory Feasibility Study is based on the March 2015 Statutory Feasibility Study and aligns with the 2014 OTTR. TRQ further announced that funding for pre-start activities had been approved, in order to ensure the project is ramped back into production as soon as possible, while not making contract commitments ahead of completing the full project approval. The funding covers work scheduled to take place before the official Notice to Proceed is approved.
In December 2015, TRQ announced that OT LLC had signed a $4.4 billion project finance facility. The Project Finance Facility is being provided by a syndicate of international financial institutions and export credit agencies representing the governments of Canada, the United States and Australia, along with 15 commercial banks. In September 2015, TRQ had noted the signing by the GOM of the request of the Multilateral Investment Guarantee Agency for host country approval with respect to guarantees to be issued by MIGA in connection with the Oyu Tolgoi Project Financing. The financing was disclosed with an all‑in finance cost of LIBOR plus 6%.
TRQ further announced that it will continue to work with Rio Tinto and OT LLC towards completing an updated feasibility study, including the updated capital estimates required in connection therewith, and securing all necessary permits for the development of the underground mine, which TRQ announced it expected early in the second quarter of 2016 with an anticipated underground development restart expected mid-2016.
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1.3 | Qualified Persons |
The LHTR16 was managed by OreWin Pty Ltd (OreWin), Adelaide, South Australia. The following Qualified Persons (QPs) were responsible for the preparation of the LHTR16:
· | Bernard Peters, BEng (Mining), FAusIMM (201743), employed by OreWin Pty Ltd as Technical Director – Mining, was responsible for the overall preparation of the report and Mineral Reserves. |
· | Sharron Sylvester, BSc (Geol), RPGeo AIG (10125), employed by OreWin Pty Ltd as Technical Director – Geology, was responsible for the preparation of the Mineral Resources. |
· | Robert M. Cann., MSc (Geol), P.Geo, consultant to and former Vice President, Exploration of Entrée Gold Inc., was responsible for preparation of all sections related to Shivee West. |
1.4 | Project Location, Access and Ownership |
Lookout Hill is located in the aimag of Ömnögovi in the South Gobi region of Mongolia, about 570 km south of the capital city of Ulaanbaatar and 80 km north of the border with China. It comprises two MLs (Shivee Tolgoi and Javhlant), which cover a total of approximately 62,920 ha and completely surrounds OT LLC's Oyu Tolgoi ML. The Shivee Tolgoi and Javhlant MLs are held by Entrée's wholly owned Mongolian subsidiary, Entrée LLC. Lookout Hill is divided into two contiguous areas: (1) the area governed under a joint venture between Entrée and OT LLC (EJV Property), and (2) Shivee West.
The ownership of the Shivee Tolgoi and Javhlant MLs is divided between Entrée and the EJV as described below and in Figure 1.2 and Figure 1.3.
· | The EJV Property comprises 39,807 ha consisting of the eastern portion of the Shivee Tolgoi ML and all of the Javhlant ML, (together the EJV Property) and is governed by a joint venture between Entrée and OT LLC. The EJV Property is contiguous with, and on three sides (to the north, east, and south) surrounds the OT LLC Oyu Tolgoi ML. The EJV Property hosts the Hugo North Extension deposit and the Heruga deposit. Rio Tinto is acting as manager of the Entrée–OT LLC Joint Venture on behalf of OT LLC. |
· | The portion of Lookout Hill outside of the EJV Property (Shivee West) covers an area of 23,114 ha and consists of the western portion of the Shivee Tolgoi ML. Shivee West is 100% owned by Entrée but is subject to a first right of refusal by OT LLC. |
Road access to Lookout Hill follows well-defined roads directly south from Ulaanbaatar requiring approximately 8–12 hours travel time in a four wheel drive vehicle. Mongolian rail service and a large electric power line lie 350 km east of the project at the main rail line between Ulaanbaatar and China. The China–Mongolia border is located approximately 80 km south of Lookout Hill. OT LLC has constructed a 105 km road from the site to the border. OT LLC has constructed a 3.25 km concrete airstrip and the site is serviced by charter and scheduled flights to and from Ulaanbaatar. Ulaanbaatar has an international airport, and Tsogttsetsii and the aimag capital of Dalanzadgad have regional airports.
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In October 2004, Entrée entered into an arm's-length Equity Participation and Earn-In Agreement as amended on November 9, 2004 (the Earn-In Agreement) with TRQ. Under the Earn-In Agreement, TRQ agreed to purchase equity securities of Entrée, and was granted the right to earn an interest in the EJV Property. Most of TRQ's rights and obligations under the Earn-In Agreement were subsequently assigned by TRQ to what was then its wholly-owned subsidiary, OT LLC which is also the title holder of the Oyu Tolgoi ML. On 30 June 2008, OT LLC gave notice that it had completed its earn-in obligations by expending a total of $35 M on exploration on the EJV Property. As a consequence, OT LLC earned an 80% interest in all minerals extracted below a sub-surface depth of 560 metres from the EJV Property and a 70% interest in all minerals extracted from surface to a depth of 560 metres from the EJV Property. The Earn-In Agreement provides that at such time as OT LLC completes its earn-in obligations, the parties will enter into a joint venture agreement in the form attached to the Earn-In Agreement. While the parties have not formally executed the joint venture agreement, the EJV is operating under those terms.
Under the terms of the Entrée–OT LLC Joint Venture, Entrée elected to have OT LLC debt finance Entrée's share of exploration and development costs with interest accruing at OT LLC'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'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's share of products in a month less Entrée's share of costs of operations for the month. The debt financing and repayment provisions limit dilution of Entrée's interest as the project progresses. Since formation, and as of 31 December 2015, the EJV has expended $27.8 M to advance the EJV Property. As of 31 December 2015, OT LLC has contributed on Entrée's behalf the required cash participation amount, including interest at prime plus 2%, of $6.8 M, equal to 20% of the $27.8 M incurred to date.
On 6 October 2009, TRQ, its wholly-owned subsidiary OT LLC, and Rio Tinto signed an Investment Agreement (IA) with the GOM, which regulates the relationship among the parties and stabilises the long term tax, legal, fiscal, regulatory and operating environment to support the development of the Oyu Tolgoi project. The IA specifies that the GOM will own 34% of the shares of OT LLC (and by extension, 34% of OT LLC's interest in the EJV) through its subsidiary Erdenes Oyu Tolgoi LLC. A shareholders' agreement was concurrently executed to establish the GOM's 34% ownership interest in OT LLC and to govern the relationship among the parties.
The contract area defined in the IA includes the Javhlant and Shivee Tolgoi MLs, including Shivee West which is not subject to the EJV. However, at the time of negotiation of the IA, Entrée was not made a party to the IA, and as such does not have any direct rights or benefits under the IA. OT LLC agreed, under the terms of the Earn-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 IA or a separate stability agreement on substantially similar terms to the IA.
Entrée is engaged in ongoing constructive discussions with stakeholders of the Oyu Tolgoi project, including the GOM, OT LLC, Erdenes Oyu Tolgoi LLC, TRQ, and Rio Tinto. The discussions to date have focussed on issues arising from Entrée's exclusion from the IA, including the fact that the GOM does not have a full 34% interest in the EJV 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 IA. In order to receive the benefits of the IA, the GOM may require Entrée to agree to certain concessions, including with respect to the ownership of the EJV, Entrée LLC or the economic benefit of Entrée's interest in the EJV Property, or the royalty rates applicable to Entrée's share of the EJV Property mineralisation. No agreements have been finalised.
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Figure 1.2 | Lookout Hill – Land Tenure |
Figure by Entrée 2016
Figure 1.3 | Idealised Long-Section of Oyu Tolgoi including Hugo North Extension and Heruga Deposits (looking west) |
Modified from OT LLC, Entrée 2016.
1.5 | Geology |
1.5.1 | Regional Geology |
Lookout Hill lies within the Palaeozoic Gurvansayhan Terrane in southern Mongolia, a component of the Altaid orogenic collage, which is a continental-scale belt dominated by compressional tectonic forces. The Gurvansayhan Terrane consists of highly deformed accretionary complexes and oceanic island arc assemblages. The island arc terrane is dominated by basaltic volcanics and intercalated volcanogenic sedimentary rocks (Upper Devonian Alagbayan Group), intruded by pluton-sized, hornblende-bearing granitoids of mainly quartz monzodiorite (Qmd) to possibly granitic composition. Carboniferous age sedimentary rocks (Sainshandhudag Formation) overlie this assemblage.
Major structures in this area include the Gobi–Tien Shan sinistral strike-slip fault system, which splits eastward into a number of splays, and the Gobi–Altai Fault system, which forms a complex zone of sedimentary basins overthrust by basement blocks to the north and north‑west.
1.5.2 | Local Geology |
The Oyu Tolgoi series of porphyry copper–gold deposits, which includes the EJV deposits, occur along a north—north-east corridor with Hugo North Extension at the north end and the Heruga deposit at the south end. Mineralisation is related to Devonian quartz monzodiorite intrusions and associated quartz stockwork. The deposits have varied characteristics in regard to host rock, intrusive bodies, sulphide mineralogy, grade, and alteration.
The pre-Carboniferous (probably Devonian) stratigraphy of Oyu Tolgoi series of deposits consists of massive augite basalt, conglomerate, dacitic tuffs, and siltstones, which are overthrust by the 'Heruga sequence', comprising basaltic flows, volcaniclastic rocks, and siltstones. Only the lower parts of the Devonian sequence host porphyry mineralisation and associated alteration. The Carboniferous Sainshandhudag Formation unconformably overlies the older rocks. Major Carboniferous or younger faults disrupt the mineralised corridor and bound the western side of most deposits.
The Hugo North Extension deposit within the EJV Property contains copper–gold porphyry-style mineralisation associated with Qmd intrusions, concealed beneath a deformed sequence of Upper Devonian and Lower Carboniferous sedimentary and volcanic rocks.
The high-grade zone at Hugo North Extension comprises relatively coarse bornite impregnating quartz and disseminated in wall rocks of varying composition, usually intergrown with subordinate chalcopyrite. Bornite is dominant in the highest grade parts of the deposit (with these zones averaging around 3.0% to 5.0% Cu) and is zoned outward to chalcopyrite (to zones averaging around 2.0% Cu for the high-grade chalcopyrite dominant mineralisation).
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The Heruga deposit contains copper–gold–molybdenum porphyry-style mineralisation hosted in Devonian basalts and Qmd intrusions, concealed beneath a deformed sequence of Upper Devonian and Lower Carboniferous sedimentary and volcanic rocks. The deposit is cut by several major brittle fault systems, partitioning 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 contemporaneous with mineralisation. The deposit is shallowest at the southern end (approximately 500 m below surface) and plunges gently to the north.
The alteration at Heruga is typical of porphyry-style deposits, with notably stronger potassic alteration at deeper levels. Locally intense quartz–sericite alteration with disseminated and vein pyrite is characteristic of mineralised Qmd. Molybdenite mineralisation seems to spatially correlate with stronger quartz–sericite alteration.
Copper sulphides occur at Heruga in both disseminations and veins/fractures. Mineralised veins have a much lower density at Heruga than in the more northerly deposits.
1.6 | Mineral Resources |
The Hugo North Extension Mineral Resource inventory, cut at the adjacent Oyu Tolgoi licence boundary, is based on drilling as of 14 February 2014 and reported as of the Resource Effective Date of 28 March 2014. The Effective Date for the Heruga Mineral Resource is 30 March 2010 and is based on drilling to 21 June 2009.
OT LLC produced 3D geological models of the major structures and lithological units based on the structural and geological information outlined in the geological discussion in this report. 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.
The Hugo North Extension and Heruga Mineral Resources are shown in Table 1.2, reported at copper equivalent cut-off grades above 0.37%. The Mineral Resource estimate for the Hugo North Extension deposit is classified as Measured, Indicated, and Inferred, while the Mineral Resource estimate for the Heruga deposit is classified as Inferred. The Mineral Resources were classified in a manner consistent with the 2014 Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards on Mineral Resources and Mineral Reserves (CIM Definition Standards) required by NI 43-101. Mineral Resources are not Mineral Reserves until they have demonstrated economic viability based on a feasibility study or prefeasibility study.
The formulae used to calculate copper equivalency have been updated in 2014 for each deposit and are discussed in more detail below. The various recovery relationships at Oyu Tolgoi are complex and relate both to grade and Cu : S ratios.
Table 1.2 | Entrée–OT LLC Joint Venture Mineral Resource Summary |
Classification | Ownership | Tonnage (Mt) | Cu (%) | Au (g/t) | Ag (g/t) | Mo (ppm) | CuEq (%) | Contained Metal | ||||
Cu (Mlb) | Au (koz) | Ag (koz) | Mo (Mlb) | CuEq (Mlb) | ||||||||
Hugo North Extension (0.37% CuEq Cut-Off) | ||||||||||||
Measured | EJV | 1.2 | 1.38 | 0.12 | 2.77 | 38.4 | 1.47 | 36 | 4.4 | 105 | 0.1 | 38 |
Indicated | EJV | 128 | 1.65 | 0.55 | 4.12 | 33.6 | 1.99 | 4,663 | 2,271 | 16,988 | 9.5 | 5,633 |
Inferred | EJV | 179 | 0.99 | 0.34 | 2.68 | 25.4 | 1.20 | 3,887 | 1,963 | 15,418 | 10.0 | 4,730 |
Heruga (0.37% CuEq Cut-Off) | ||||||||||||
Inferred | EJV | 1,700 | 0.39 | 0.37 | 1.39 | 113.2 | 0.64 | 14,610 | 20,428 | 75,955 | 424 | 24,061 |
1. | CuEq is copper-equivalent grade, expressed in percent. |
2. | Effective date for the Mineral Resources for Hugo North Extension is 28 March 2014. |
3. | Effective date for the Mineral Resources for Heruga is 30 March 2010. |
4. | The 0.37% CuEq cut-off is equivalent to the underground Mineral Reserve cut-off as determined by OT LLC. |
5. | CuEq has been calculated using assumed metal prices ($3.01/lb for copper, $1,250/oz for gold, $20.37/oz for silver, and $11.90/lb for molybdenum). |
a) | Hugo North Extension CuEq% = Cu% + ((Au (g/t) x 1,250 x 0.0321507 x 0.913) + (Ag (g/t) x 20.37 x 0.0321507 x 0. 942)) / (3.01 x 22.0462) |
b) | Heruga CuEq% = Cu% + ((Au (g/t) x 1,250 x 0.0321507 x 0.911) + (Ag (g/t) x 20.37 x 0.0321507 x 0. 949) + (Mo (ppm) x 11.9 x 0.0022046 x 0.736)) / (3.01 x 22.0462) |
6. | The contained copper, gold, silver, and molybdenum in the tables have not been adjusted for metallurgical recovery. |
7. | Totals may not match due to rounding. |
8. | Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. |
9. | The EJV includes a portion of the Shivee Tolgoi licence and the all of Javhlant ML. Both the Javhlant ML and the eastern portion of the Shivee Tolgoi licence are held for the EJV by Entrée. The EJV Property is operated by Rio Tinto on behalf of OT LLC. Entrée has a 20% interest in mineralisation extracted from the EJV Property and OT LLC has an 80% interest. |
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1.6.1 | Hugo North Extension |
The Hugo North Extension resource model is based on a new geological interpretation and refined structural model for the Hugo North deposit. Updated Hugo North interpretations were developed as three dimensional wireframes based on all of the available drillhole data as at the close-off date of 14 February 2014.
A sub-celled volume model was developed from these updated interpretations using parent cell dimensions equal to 15 m x 15 m x 15 m and minimum sub-cell dimensions down to 5.0 m x 5.0 m x 5.0 m to allow good resolution at interpreted boundaries. Interpolation was undertaken into the mineralised domains (Va, Qmd, Ign, and xBigD) using ordinary kriging methods, except for bulk density, which was interpolated using a combination of simple kriging and inverse distance weighting to the third power (ID3). Grades were estimated into parent cells and assigned to sub-cells of like-domain using 5.0 m drillhole composites. A nearest neighbour estimation run was also undertaken for validation purposes. Search parameters were derived from variographic analysis. Concentric expanding search ellipsoids were used in a three-pass estimation process, whereby model cells that did not receive an estimate in a previous search ellipse moved to the next larger pass for a repeated attempt at estimation. At least three drillholes were used to estimate blocks in the first search pass, and the number of composites from a single drillhole that could be used was restricted to three. Similarly, search pass two required a minimum of two drillholes to generate an estimate. The number of composites allowed from a single hole was restricted to three. For both copper and gold, a combination of outlier restriction and grade capping was used to control the effects of high-grade samples within the domains.
At Hugo North Extension, block confidence classification is based on three processes: preliminary block classification using a script based on distance to a drillhole and number of drillholes used to estimate a block, generation of probability model for the three confidence categories, and manual 'cleaning' using polygons generated in sectional view.
1.6.2 | Heruga |
The Heruga resource model has not been updated; however, grades and tonnages have been revised slightly because of changes to the CuEq calculation (see discussion below) and resultant changes to blocks contained within the CuEq cut-off grade. The 2014 revised CuEq formula has affected the Heruga mineral resource estimate, with a 7% drop in tonnage, a 4% drop in copper, gold, silver, and molybdenum contained metals, and a 10% drop in copper equivalent metal relative to the Mineral Resource reported in LHTR13.
Mineral Resources are not Mineral Reserves until they have demonstrated economic viability based on a feasibility study or prefeasibility study.
The Mineral Resource estimate was originally prepared by OT LLC. A close-off date of 31 May 2009 for survey (collar and downhole) data was utilised for constructing the geological domains. The Effective Date for the Heruga Mineral Resource is 30 March 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.
Modelling of mineralisation zones for resource estimation purposes revealed that there is an upper copper-dominant zone and a deeper gold-dominant zone within the overall
copper–gold porphyry at Heruga. In addition, there is significant (100–1,000 ppm) molybdenum mineralisation in the form of molybdenite, which is more-closely associated with the copper mineralisation.
copper–gold porphyry at Heruga. In addition, there is significant (100–1,000 ppm) molybdenum mineralisation in the form of molybdenite, which is more-closely associated with the copper mineralisation.
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The database used to estimate the Mineral Resources for the Heruga deposit consists of samples and geological information from 43 drillholes, including daughter holes, totalling 58,276 m.
OT LLC created 3D shapes (wireframes) of the major geological features of the Heruga deposit. To assist in the estimation of grades in the model, OT LLC also manually created 3D grade shells (wireframes) for each of the metals to be estimated. Construction of the grade shells took into account prominent lithological and structural features, in particular the four major sub-vertical post-mineralisation faults. For copper, a single grade shell at a threshold of 0.3% Cu was used. For gold, wireframes were constructed at thresholds of 0.3 g/t Au and 0.7 g/t Au. For molybdenum, a single grade shell at a threshold of 100 ppm Mo was constructed. Silver was estimated using the copper domains. These grade shells took into account known gross geological controls in addition to broadly adhering to the above mentioned thresholds.
Resource estimates were undertaken by OT LLC and the methods used were very similar to those used to estimate the Hugo North Extension. Interpolation domains were based on mineralised geology, and grade estimation based on ordinary kriging. Bulk density was interpolated using an inverse distance to the third power methodology. The assays were composited into 5.0 m downhole composites; block sizes were 20 m x 20 m x 15 m.
The Mineral Resources for Heruga (Table 1.2) were classified using logic consistent with the 2014 CIM Definition Standards required by NI 43-101. Blocks within 150 m of a drillhole were initially considered to be Inferred. A 3D wireframe was constructed, inside of which the nominal drill spacing was less than 150 m.
1.6.3 | 2014 CuEq Formula Derivation |
The 2014 copper-equivalence formulae incorporate copper, gold, and silver, and also molybdenum for Heruga. The assumed metal prices are $3.01/lb for copper, $1,250/oz for gold, $20.37/oz for silver, and $11.90/lb for molybdenum.
Copper estimates are expressed in the form of percentages (%), gold and silver are expressed in grams per tonne (g/t), and molybdenum is expressed in parts per million (ppm).
Metallurgical recovery for gold, silver, and molybdenum are expressed as a percentage relative to copper recovery.
All elements included in the copper equivalent calculation have a reasonable potential to be recovered and sold, except for molybdenum. Molybdenum grades are only considered high enough to support construction of a molybdenum recovery circuit for Heruga mineralisation; hence the recoveries of molybdenum are assumed to be zero for Hugo North Extension.
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CuEq14(Hugo North Extension) =
Cu + ((Au x 1,250 x 0.0321507 x 0.913) + (Ag x 20.37 x 0.0321507 x 0.942)) / (3.01 x 22.0462)
The base formula for Heruga is as follows:
CuEq14(HERUGA) =
Cu + ((Au x 1,250 x 0.0321507 x 0.911) + (Ag x 20.37 x 0.0321507 x 0.949) + (Mo x 11.9 x 0.0022046 x 0.736)) / (3.01 x 22.0462)
1.7 | Mineral Reserve |
The EJV Property Mineral Reserve is contained within the Hugo North Extension Lift 1 Block Cave. The mine design work on Hugo North Lift 1 was prepared by OT LLC and accepted as the basis for the underground mine planning in the 2014 OTTR. OreWin agrees with this conclusion and has reported the results for the 20 September 2014 Hugo North Extension Mineral Reserve estimate in LHTR16. The EJV Property Mineral Reserve will be mined as part of the Oyu Tolgoi project and as such is a subset of the total Oyu Tolgoi Mineral Reserves reported in the 2014 OTTR. The Mineral Reserves are based on mine planning work prepared by OT LLC. This work was reviewed and has been used as the basis for reporting the current Mineral Reserves.
Mineral Reserves were last publically reported in the LHTR13 (March 2013). LHTR16 Mineral Reserves for the EJV Property are shown in Table 1.3. A reconciliation of the LHTR13 and LHTR16 Mineral Reserves is shown in Table 1.4.
Table 1.3 | EJV Mineral Reserve, 20 September 2014 |
Classification | Ore (Mt) | Cu (%) | Au (g/t) | Ag (g/t) | Copper (Mlb) | Gold (koz) | Silver (koz) |
Proven | – | – | – | – | – | – | – |
Probable | 35 | 1.59 | 0.55 | 3.72 | 1,121 | 519 | 3,591 |
Total EJV | 35 | 1.59 | 0.55 | 3.72 | 1,121 | 519 | 3,591 |
1. | Metal prices used for calculating the Hugo North Extension underground Net Smelter Return (NSR) are as follows: copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz, all based on long-term metal price forecasts at the beginning of the mineral reserve work. The analysis indicates that the mineral reserve is still valid at these metal prices. |
2. | The NSR has been calculated with assumptions specific to Hugo North Extension for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties. |
3. | The block cave shell was defined using a NSR cut-off of $15/t NSR. |
4. | For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. This includes low-grade Indicated mineral resources and Inferred mineral resources, which has been assigned a zero grade and treated as dilution. |
5. | Only Indicated mineral resources were used to report Probable mineral reserves. |
6. | EJV is the Entrée–OT LLC Joint Venture. The EJV includes a portion of the Shivee Tolgoi ML and all of the Javhlant ML. Both the Javhlant ML and the eastern portion of the Shivee Tolgoi ML are held by Entrée for the EJV. The EJV Property is operated by Rio Tinto on behalf of OT LLC. Entrée has a 20% interest in the mineralisation extracted from the EJV Property and OT LLC has an 80% interest. |
7. | The base case financial analysis has been prepared using the following current long-term metal price estimates: copper at $3.08/lb; gold at $1,304/oz; and silver at $21.46/oz. |
8. | The mineral reserves reported above are not additive to the mineral resources. |
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The underground Mineral Reserve statement in LHTR16 only considers Mineral Resources in the Indicated category, and engineering that has been carried out to a feasibility level or better. Copper and gold grades of Inferred Resources within the block cave shell were set to zero and such material was assumed to be dilution. The block cave shell was defined using a net smelter return (NSR) cut-off of $15/t NSR, and further mine planning will examine lower cut-offs.
Table 1.4 | LHTR16 and LHTR13 Probable Mineral Reserve Comparison |
Classification | Ore (Mt) | Cu (%) | Au (g/t) | Ag (g/t) | Copper (Mlb) | Gold (koz) | Silver (koz) |
LHTR16 | 35 | 1.59 | 0.55 | 3.72 | 1,121 | 519 | 3,591 |
LHTR13 | 31 | 1.73 | 0.62 | 3.74 | 1,090 | 521 | 3,229 |
Difference | 4 | –0.14 | –0.07 | –0.02 | 31 | –2 | 361 |
Difference (%) | 11.7% | –8.1% | –11.3% | –0.6% | 2.8% | –0.4% | 11.2% |
1. | LHTR13 Mineral Reserves have the effective date 25 March 2013. |
2. | LHTR16 Mineral Reserves have the effective date 20 September 2014. |
3. | Metal prices used for calculating the LHTR16 Hugo North Extension underground Net Smelter Return (NSR) are as follows: copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz, all based on long-term metal price forecasts at the beginning of the mineral reserve work. |
4. | Metal prices used for calculating the LHTR13 Hugo North Extension underground Net Smelter Return (NSR) are as follows: copper at $2.81/lb; gold at $970/oz; and silver at $15.50/oz, all based on long-term metal price forecasts at the beginning of the mineral reserve work. |
5. | The NSR has been calculated with assumptions specific to Hugo North Extension for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties. |
6. | For both the LHTR13 and LHTR16 the block cave shell was defined using a NSR cut-off of $15/t NSR. |
7. | For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. This includes low grade Indicated mineral resources and Inferred mineral resources, which has been assigned a zero grade and treated as dilution. |
8. | Only Indicated mineral resources were used to report Probable mineral reserves. |
9. | EJV is the Entrée–OT LLC Joint Venture. The EJV includes a portion of the Shivee Tolgoi ML and all of the Javhlant ML. Both the Javhlant ML and the eastern portion of the Shivee Tolgoi ML are held by Entrée for the EJV. The EJV Property is operated by Rio Tinto on behalf of OT LLC. Entrée has a 20% interest in the mineralisation extracted from the EJV Property and OT LLC has an 80% interest. |
10. | The mineral reserves reported above are not additive to the mineral resources. |
1.8 | Mining Methods |
Oyu Tolgoi, including the EJV Property, hosts four main semi-contiguous, surface and underground porphyry copper–gold deposits (Hugo North, Hugo South, SOT, and Heruga – from north to south) along a 12 km north-north‑east trending belt. Mineral reserves and resources estimated on these deposits form the basis of future project development. The deposits are located both on the Oyu Tolgoi ML and on the adjacent EJV Property, but the EJV deposits will be developed, operated and processed by OT LLC under the terms of the Entrée–OT LLC Joint Venture. This provides the operator with flexibility in studying alternative paths for mine development to match future economic conditions and actual mine performance.
Underground mining at Oyu Tolgoi, including the EJV Property, is planned to be by panel caving which is a variation of block caving. The weak, massive nature of the Hugo North and Hugo North Extension deposits and their location between 700 m and 1,400 m below surface make them well suited both geotechnically and economically to the large-scale caving method of underground mining. Caving requires a large early capital investment but is highly productive and has low operating costs.
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The mine design consists of 203 km of lateral development, five shafts, and two decline tunnels from surface. Five shafts are required to provide access for mining personnel and equipment, for production, and for intake and exhaust ventilation-ways. The primary life-of-mine material handling system will transport material to surface by a series of conveyors to surface. An overview of Lift 1 development is shown in Figure 1.4. The underground mine will operate at a nominal 95 ktpd. The long operating life of the mine supports this initial capital investment. Lift 1 cave dimensions are summarised in Table 1.5.
Table 1.5 | Hugo North (including 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 |
Figure 1.4 | Hugo North Lift 1 Mine Design |
Modified from OT LLC figure by Entrée 2014.
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1.9 | Metallurgy and Process |
Oyu Tolgoi employs a conventional SAG mill / ball mill / grinding circuit (SABC) followed by flotation, as shown in the basic flowsheet (Figure 1.5). Phase 1 (OT LLC's open pit and concentrator), which commenced production in 2013, uses two grinding lines, each consisting of a SAG mill, two parallel ball mills, and associated downstream equipment to treat up to 100 ktpd of plant feed from the Southwest Zone pit.
Combined with Hugo North underground production, concentrator feed rates will be as high as 121 ktpd, which represents the tailings handling capacity of the plant. The Phase 2 (Lift 1) concentrator development programme optimises the concentrator circuit to enable it to maximise recovery from the higher grade Lift 1 plant feed. The Phase 2 concentrator expansion will include:
· | The addition of a fifth ball mill to achieve a finer primary grind P80 of 150–160 µm for a blend of Hugo North and open pit feeds, compared to 180 µm for Southwest Zone. |
· | Additional roughing and cleaner column flotation capacity to process the higher level of concentrate production when processing the higher grade Hugo North plant feed. |
· | Additional concentrate dewatering and bagging capacity. |
Figure 1.5 | Basic Oyu Tolgoi Flowsheet – Phase 1 |
Figure by OT LLC 2014.
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1.10 | Project Infrastructure and Power |
The Oyu Tolgoi project now has an established base set of infrastructure. A site plan showing the key infrastructure and locations of the plant and mines is shown in Figure 1.6. The EJV LHTR16 Hugo North Extension mining area is immediately north of the Oyu Tolgoi ML.
In the current study, power has been assumed to be purchased from a Mongolian supplier. On 14 August 2014, TRQ announced that OT LLC had signed a Power Sector Cooperation Agreement with the GOM, which provides for an open, international tender process to identify and select an independent power provider to privately fund, construct, own and operate a power plant to supply electricity, with the Oyu Tolgoi project (including the EJV Property) as the primary customer.
In May 2015, as part of the agreement between stakeholders for the UDP, OT LLC committed to providing working assumptions for a financing plan towards supporting a long‑term power agreement with a Tavan Tolgoi power station.
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Figure 1.6 | Site Plan |
Figure by OreWin, 2016
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1.11 | Transport and Logistics |
Concentrate and supplies are currently transported along a 105 km sealed road that has been constructed to the Mongolian–Chinese border crossing at Gashuun Sukhait. The GOM has committed to providing OT LLC with non-discriminatory access to any railway constructed between Mongolia and China. The GOM is currently supporting construction of a standard gauge single-track heavy-haul rail from the Tavan Tolgoi coal mine (approximately 120 km to the north-west of Lookout Hill) to Gashuun Sukhait (Figure 1.7), ultimately to be interconnected with the Chinese rail network at Ganqimaodao on the Chinese side of the border. Once constructed, the South Gobi Rail alignment would pass across the Javhlant ML and therefore represents an opportunity for eventual connection of the Oyu Tolgoi project to the rail network. Rail line construction is currently suspended but could be completed by 2018 if financing is secured.
Figure 1.7 | Oyu Tolgoi Regional Road and Rail |
Figure by Entrée 2014.
1.12 | Concentrate Sales and Marketing |
Concentrate is sold in-bond free-on-board at a bonded yard on the Chinese side of the border in Ganqimaodao (Figure 1.7). Sales contracts were signed for 100% of Oyu Tolgoi's 2015 concentrate production and 90% of 2016 planned production; over 80% of concentrate production has been contracted for up to eight years.
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OT LLC's analysis of the copper market indicates long-term dynamics for copper will be driven by a combination of factors. Significant increases are forecast in copper consumption per capita, owing particularly to the industrialisation and urbanisation of China and other emerging markets. A back-drop of strong long‑term copper demand and constrained supply is expected to offer fundamental support to copper prices. In recent years, supply has failed to respond quickly enough to increased demand from emerging regions. Global electrification and the growth of China and India will drive the increasing intensity of use per capita gross domestic product (GDP).
Copper demand will also benefit from a greater long-term focus on renewable sources of energy and energy-efficient technologies such as wind turbines and electric / hybrid vehicles, which are of copper-intensive fabrication.
1.13 | Environmental Studies and Social Impact Assessment |
OT LLC has completed a comprehensive Environmental and Social Impact Assessment (ESIA) for Oyu Tolgoi, including the EJV Property. The ESIA undertaken as part of the project finance process was publically disclosed in August 2012 and identifies and assesses the potential environmental and social impacts of the project, including cumulative impacts, focusing on key areas such as biodiversity, water resources, cultural heritage, and resettlement.
The ESIA also sets out measures through all project phases to avoid, minimise, mitigate, and manage potential adverse impacts to acceptable levels established by Mongolian regulatory requirements and good international industry practice, as defined by the requirements of the Equator Principles, and the standards and policies of the International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), and other financing institutions.
OT LLC has implemented and audited an environmental management system (EMS) that conforms to the requirements of ISO 14001 : 2004.
The EMS for operations consists of detailed plans to control the environmental and social management aspects of all project activities following the commencement of commercial production from the OT LLC open pit in 2013. The Oyu Tolgoi ESIA builds upon an extensive body of studies and reports, and Detailed Environmental Impact Assessments (DEIAs) that have been prepared for project design and development purposes, and for Mongolian approvals under the following laws:
· | The Environmental Protection Law (1995); |
· | The Law on Environmental Impact Assessment (1998, amended in 2001); and |
· | The Minerals Law (2006). |
Initial studies, reports, and DEIAs were prepared over a six-year period between 2002 and 2008, primarily by the Mongolian company Eco-Trade LLC, with input from Aquaterra Consulting Pty Ltd., now RPS Group Plc (RPS Aquaterra) on water issues.
The original DEIAs were in accordance with Mongolian standards and while they incorporated World Bank and IFC guidelines, they were not intended to comprehensively address overarching IFC policies such as the IFC Policy on Social and Environmental Sustainability, or the EBRD Environmental and Social Policy.
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Following submission and approval of the initial DEIAs, the GOM requested that OT LLC prepare an updated, comprehensive ESIA whereby the discussion of impacts and mitigation measures was project-wide and based on the latest project design. The ESIA was also to address social issues, meet GOM (legal) requirements, and comply with current IFC good practice.
For the ESIA, the baseline information from the original DEIAs was updated with recent monitoring and survey data. In addition, a social analysis was completed through the commissioning of a Socio-Economic Baseline Study and the preparation of a Social Impact Assessment (SIA) for the project.
The requested ESIA, completed in 2012, combines the DEIAs, the project SIA, and other studies and activities that have been prepared and undertaken by and for OT LLC.
1.14 | Capital and Operating Costs |
Under the terms of the EJV, OT LLC is responsible for 80% of all costs incurred on the EJV Property for the benefit of the EJV, including capital expenditures, and Entrée is responsible for the remaining 20%. Under the terms of the EJV, Entrée has elected to have OT LLC debt finance Entrée's share of costs for approved programs and budgets, with interest accruing at OT LLC'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 EJV activities for the month that are operating costs under Canadian generally accepted accounting principles.
Under the terms of the EJV, any mill, smelter and other processing facilities and related infrastructure will be owned exclusively by OT LLC and not by Entrée. Minerals from the EJV Property will be processed at cost (using industry standards for calculation of cost including an amortization of capital costs). The amortization allowance for capital costs will be calculated in accordance with generally accepted accounting principles determined yearly based on the estimated quantity of minerals to be processed for Entrée's account during that year relative to the total design capacity of the processing facilities over their useful life.
The capital and operating costs in LHTR16 for the Reserve Case are those that were prepared for OTFS14. The average operating costs for the EJV is shown in Table 1.6.
Table 1.6 | EJV Average Operating Cost Summary |
Description | Unit | Total |
Average Operating Cost | $/t Processed | 34.56 |
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The EJV capital expenditure including expansion and sustaining capital is shown in Table 1.7. The concentrator capital cost is applied proportionally by the total tonnes processed as a depreciation charge to the EJV.
Table 1.7 | EJV Capital Expenditure |
Description | Unit | Total |
EJV Shaft 4 | $M | 18 |
Hugo North Extension Lift 1 | $M | 417 |
Total | $M | 435 |
Capital includes only direct project costs and does not include non-cash shareholder interest, management payments, foreign exchange gains or losses, foreign exchange movements, tax pre-payments, or exploration phase expenditure. Entrée is responsible for 20% of EJV capital expenditures, or approximately $87M.
Power has been treated as a purchased utility from a third-party provider. Mine site cash costs are shown in Table 1.8. Cash costs are those costs relating to the direct operating costs of the mine site, namely:
· | Mining |
· | Concentration |
· | Tailings |
· | Operational Support Costs |
· | Infrastructure |
· | Depreciation Charge |
· | Administration Fees |
Table 1.8 | EJV Unit Operating Costs by Copper Production |
Description | Unit | LOM Average |
Mine Site Cash Cost | $/lb Payable Copper | 1.11 |
TC/RC, Royalties & Transport | $/lb Payable Copper | 0.54 |
Total Cash Costs Before Credits | $/lb Payable Copper | 1.66 |
Gold Credits | $/lb Payable Copper | 0.60 |
Silver Credits | $/lb Payable Copper | 0.06 |
Total Cash Costs After Credits | $/lb Payable Copper | 0.99 |
1.15 | Economic Analysis |
The financial analysis has been prepared using the following long-term metal price estimates: copper at $3.08/lb; gold at $1,304/oz and silver at $21.46/oz (in LHTR16, currency is expressed in US dollars unless otherwise noted). A summary of the EJV Property production and financial results for the LHTR16 Reserve Case is shown in Table 1.9. The after-tax NPV8 attributable to Entrée for the LHTR16 Reserve Case is $106 M.
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OTFS14 assumed that the timing for the restart of the underground mine would occur at the commencement of 2015. Despite the fact that this did not occur, the economic analysis of the Mineral Reserve remains valid and the costs and revenues are delayed by the same timing. Based on the TRQ expectation that underground development will restart in mid‑2016 the discounted cash flow has been calculated assuming Year 1 is 2016. A summary of the LHTR16 Reserve Case discount rate sensitivity is shown in Table 1.10.
Table 1.9 | Summary Production and Financial Results |
Description | Units | Total |
Total OT Processed | bt | 1.5 |
EJV Property Results | ||
EJV Processed | Mt | 34.8 |
NSR | $/t | 100.57 |
Cu Grade | % | 1.59 |
Au Grade | g/t | 0.55 |
Ag Grade | g/t | 3.72 |
Copper Recovered | Mlb | 1,121 |
Gold Recovered | koz | 519 |
Silver Recovered | koz | 3,591 |
Total Cash Costs After Credits | $/lb Payable Copper | 0.99 |
NPV (8%) After Tax (Entrée) | $M | 106 |
NPV (8%) Before Tax (Entrée) | $M | 142 |
1. | Metal prices used for calculating the Hugo North Extension underground Net Smelter Return (NSR) are as follows: copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz, all based on long-term metal price forecasts at the beginning of the mineral reserve work. The analysis indicates that the mineral reserve is still valid at these metal prices. |
2. | The NSR has been calculated with assumptions specific to Hugo North Extension for smelter refining and treatment charges, deductions and payment terms, concentrate transport, metallurgical recoveries and royalties. |
3. | The block cave shell was defined using a NSR cut-off of $15/t NSR. |
4. | For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. This includes low grade Indicated mineral resources and Inferred mineral resources, which has been assigned a zero grade and treated as dilution. |
5. | Only Measured mineral resources were used to report Proven mineral reserves and only Indicated mineral resources were used to report Probable mineral reserves. |
6. | EJV is the Entrée—OT LLC Joint Venture. The EJV includes a portion of the Shivee Tolgoi ML and all of the Javhlant ML. Both the Javhlant ML and the eastern portion of the Shivee Tolgoi ML are held by Entrée for the EJV. The EJV Property is operated by Rio Tinto on behalf of OT LLC. Entrée has a 20% interest in the mineralisation extracted from the EJV Property and OT LLC has an 80% interest. |
7. | The base case financial analysis has been prepared using the following current long term metal price estimates: copper at $3.08/lb; gold at $1,304/oz; and silver at $21.46/oz. |
8. | The mineral reserves reported are not additive to the mineral resources. |
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Table 1.10 | Entrée Financial Results — Discount Rate Sensitivity — LHTR16 Reserve Case |
Discount Rate | Net Present Value ($M) Entrée | |
Before-Tax | After-Tax | |
Undiscounted | 440 | 328 |
5.0% | 215 | 160 |
6.0% | 187 | 139 |
7.0% | 163 | 121 |
8.0% | 142 | 106 |
9.0% | 124 | 93 |
10.0% | 109 | 81 |
The EJV and OT LLC processing tonnages and copper, gold, and silver metal production in the LHTR16 Reserve Case is shown in Figure 1.8 to Figure 1.11. The production shown is the total production from the EJV of which 20% is attributable to Entrée. Total EJV 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. EJV Lift 1 production will reach a peak of 8.3 Mt in 2031.
The following is a summary of the terms of the EJV relating to cost allocation and revenues to Entrée. Under the terms of the EJV, Entrée elected to have OT LLC debt finance Entrée's share of costs with interest accruing at OT LLC'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 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 operations for the month.
For the analysis in LHTR16 Entrée have advised that under the terms of the EJV, OT LLC is responsible for 80% of all costs incurred on the EJV Property, including capital expenditures, and Entrée for the remaining 20%, subject to the following exceptions:
· | OT LLC is responsible for 100% of costs incurred on the EJV Property to the extent the costs benefit the Oyu Tolgoi ML; and |
· | Costs relating to construction or operation of mill, smelter and other processing facilities are solely for the account of OT LLC, with Entrée paying milling and smelting charges at cost (using industry standards for calculation of cost including an amortization of capital costs). |
LHTR16 Reserve Case concentrate and metal production are summarised in Figure 1.12. Entrée's cash flows from the Reserve Case are shown in Figure 1.13.
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Figure 1.8 | Processing by Source — LHTR16 Reserve Case |
Note: Entrée has a 20% interest in ore extracted from Hugo North EJV.
Figure 1.9 | Copper Production — LHTR16 Reserve Case |
Note: Entrée has a 20% interest in ore extracted from Hugo North EJV.
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Figure 1.10 | Gold Production — LHTR16 Reserve Case |
Note: Entrée has a 20% interest in ore extracted from Hugo North EJV.
Figure 1.11 | Silver Production — LHTR16 Reserve Case |
Note: Entrée has a 20% interest in ore extracted from Hugo North EJV.
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Figure 1.12 | EJV Concentrate and Metal Production — LHTR16 Reserve Case |
Note: Entrée has a 20% interest in ore extracted from Hugo North EJV.
Figure 1.13 | Entrée Cumulative Undiscounted Cash Flow — LHTR16 Reserve Case |
Note: Entrée has a 20% interest in ore extracted from Hugo North EJV.
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1.16 | Alternative Production Cases |
Oyu Tolgoi is a very large project that includes four separate deposits. The long-term development of Oyu Tolgoi would involve the development of the resources on all deposits. Alternative Production Cases have been developed to provide early-stage analysis of the development flexibility that exists with respect to later phases of the Oyu Tolgoi deposits (Heruga, Hugo South, and Lift 2 of Hugo North).
While it is outside of the scope of reserve reporting, as part of the long-term development strategy OT LLC continues to examine the Alternative Production Cases to better define future work plans and prepare for investment decision points. The mine designs developed by OT LLC and considered in the Alternative Production Cases are shown schematically in Figure 1.14 and listed below:
· | SOT Open Pits | (Reserves) |
· | Hugo North Lift 1 Block Cave | (Reserves) |
· | Hugo North Lift 1 Block Cave | (Resources Indicated and Inferred) |
· | Hugo North Lift 2 Block Cave | (Resources Indicated and Inferred) |
· | Hugo South Block Cave | (Resources Inferred) |
· | Heruga Block Cave | (Resources Inferred) |
The mine designs above that are in the Alternative Production Cases and on the EJV Property are:
· | Hugo North Extension Lift 1 Block Cave | (Reserves) |
· | Hugo North Extension Lift 2 Block Cave | (Resources Indicated and Inferred) |
· | Heruga Block Cave | (Resources Inferred) |
Under NI 43-101 guidelines, Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorised as Mineral Reserves. There is no certainty that the Alternative Production Cases will be realised.
Development of these deposits will require separate development decisions in the future based on the prevailing conditions and the development experience obtained from developing and operating the initial phases of Oyu Tolgoi.
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Figure 1.14 | Alternative Production Cases Mining Areas |
Figure by OreWin, 2014
Figure 1.15 shows an example of the decision tree for the possible development options at Oyu Tolgoi including the EJV Property. This has been updated to include options that take advantage of productivity improvements in plant throughput that have begun to be recognised in the process plant. The decision tree shows options assuming that continuous improvements in plant productivity are achieved over the next five years. Then there would be key decision points for plant expansion and the development of new mines at Hugo North Lift 2, Hugo South, and eventually Heruga. This provides an opportunity as OT LLC will have the benefit of incorporating actual performance of the operating mine into the study before the next investment decisions are required. OT LLC plans to continue to evaluate Alternative Production Cases in order to define the relative ranking and timing requirements for overall development options.
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Figure 1.15 | Oyu Tolgoi Development Options |
These Alternative Production Cases will be part of the strategic planning that is being undertaken by OT LLC. There are four production cases, the initial case assumes no expansion of the plant and three Alternative Production Cases that assume expansions to the plant capacity described by the decision tree shown in Figure 1.15. The Alternative Production Cases are:
· | LOM 140 - Continuous improvement of plant throughput of 5.0% per year for five years. |
· | LOM 260 - LOM 140 plus a 100% plant expansion after approximately 20 years. |
· | LOM 350 - Progressive expansion of the plant to 350 ktpd. |
LOM 140 assumes that there is an increased in plant throughput productivity of 5.0% per year for five years and that the Hugo North Lift 1 development is followed by production from Hugo North Lift 2, Hugo South and Heruga. The average throughput rate is approximately 140 ktpd or 51 Mtpa and potential processing schedule for LOM 140 is shown in Figure 1.16.
LOM 260 (see Figure 1.17) is an extension of LOM 140 and assumes that the plant capacity is doubled after approximately 20 years to an average throughput rate of 260 ktpd or 95 Mtpa.
LOM 350 assumes that there are progressive plant expansion to a rate of 350 ktpd or 128 Mtpa. With each successive expansion case there is a reduction of the mine life that would necessitate the success of further exploration to continue production. In LOM 350 (Figure 1.18) this would be required to bring the exploration potential to production in approximately 30 years.
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The work on the Alternative Production Cases is not yet at feasibility study stage, in particular the definition of the expansion sizes and costing of the cases. It is recommended that the options be studied further and that the timing of the new mines be defined in more detail.
Under the NI 43-101 guidelines, Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorised as Mineral Reserves. There is no certainty that the Alternative Production Cases will be realised.
Figure 1.16 | Alternative Production LOM 140 |
Under the NI 43-101 guidelines, Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorised as Mineral Reserves. There is no certainty that the Alternative Production Cases will be realised. Entrée has a 20% interest in ore extracted from HN EJV1, HN EJV2 and Heruga EJV.
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Figure 1.17 | Alternative Production LOM 260 |
Under the NI 43-101 guidelines, Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorised as Mineral Reserves. There is no certainty that the Alternative Production Cases will be realised. Entrée has a 20% interest in ore extracted from HN EJV1, HN EJV2 and Heruga EJV.
Figure 1.18 | Alternative Production LOM 350 |
Under the NI 43-101 guidelines, Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorised as Mineral Reserves. There is no certainty that the Alternative Production Cases will be realised. Entrée has a 20% interest in ore extracted from HN EJV1, HN EJV2 and Heruga EJV.
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1.17 | Shivee West |
Entrée has a 100% interest in the 23,114 ha western portion of the Shivee Tolgoi ML. To date, no economic zones of precious or base metals mineralisation have been outlined on Shivee West, however, zones of gold and copper mineralisation have been identified at Zone III / Argo Zone, Khoyor Mod and at Zone I, respectively. In 2011, reverse circulation (RC) drilling was conducted over the Zone III near-surface epithermal gold target and expanded north, where a new gold zone (Argo Zone) was discovered 250 m beyond the previously known area of gold mineralisation. The Argo Zone was partly defined by six RC holes, two trenches, and surface chip sampling. Hole EGRC-11-112 returned 14 m of 1.82 g/t Au and hole EGRC-11-111 returned 3.0 m of 2.21 g/t Au. Two separate high-grade surface chip samples averaged 42.4 g/t Au over 4.0 m and 19.3 g/t Au over 3.0 m. Shallow gold mineralisation in both zones is hosted by quartz veined felsic volcanic rocks.
In 2012, work focused on geological mapping, excavator trenching and sampling in the Argo Zone / Zone III and Khoyor Mod areas. In total, 22 trenches (1,723 m) were excavated. The area of Argo gold mineralisation was extended 140 m further north from mineralisation defined by 2011 RC drilling and the Argo Zone now measures approximately 400 m long by up to 130 m wide. One of the trench samples returned 81.4 g/t Au over 3 m, confirming and expanding 2011 high-grade gold values. The Khoyor Mod target is located approximately 6 km south of Argo and comprises a 250 m x 300 m area of quartz stockwork within Devonian sediments. The stockwork is anomalous in gold (trace to 0.58 g/t) and copper (67–505 ppm) and displays some characteristics of porphyry-style mineralisation.
Zone I is located 2.5 km east of Zone III / Argo Zone and is a prominent 2 km long area of argillic and advanced argillic alteration. This zone has received considerable attention using mapping, RC and core drilling, geophysics (Induced Polarisation - IP), and excavator trenching. The silicified rocks that define Zone I form a discrete region of coalescing northerly trending ridges that outline a topographically prominent highland feature about 1.0 km by 3.8 km in size. The best drill results from Zone 1 were 0.1%–0.2% Cu over widths of 2.0–4.0 m.
No exploration work was completed on Shivee West in 2013, 2014, and 2015.
1.18 | Conclusions |
Entrée has significant Indicated, and Inferred Mineral Resources in the Hugo North Extension deposit and Inferred Mineral Resources in the Heruga deposit. The long-term development of the Oyu Tolgoi project would involve the development of the resources on all deposits, including Hugo North Extension and Heruga.
The present geological interpretations are acceptable for the geological and resource models at the levels of confidence stated. The geological interpretations and models are likely to change as the project proceeds to detailed mine design and construction.
The Alternative production cases have been developed to provide early-stage analysis of the development flexibility that exists with respect to later phases of the Oyu Tolgoi project (Heruga, Hugo South, and Lift 2 Hugo North, including Hugo North Extension). Development of these deposits will require separate development decisions in the future based on then prevailing conditions and the development experience obtained from developing and operating the initial phases of Oyu Tolgoi.
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OT LLC plans to undertake engineering studies of expansion options in the continuing study of the Oyu Tolgoi project, including the EJV Property. This will include examining all production scenarios and associated expansion options. OT LLC plans a focused and structured review of the study work to be used in the capital approvals process as the operation develops. OreWin believes that further design work could identify opportunities to improve project economics via cost reductions and mine plan optimisation. This may result in further positive changes to the EJV development schedule that could bring forward development of EJV mineral deposits relative to the LHTR16 Reserve Case.
The EJV exploration programme relies strongly on geophysical survey data (IP and magnetics), and other valid targets still remain to be tested within the project land holdings.
The Shivee West exploration programme relies strongly on geophysical survey data (IP and magnetics), and valid targets still remain to be tested. Both the Argo and Zone III gold targets lie within a well-defined, northerly-trending magnetic-low, which extends for at least 2.5 km along strike. Mineralisation at Argo and Zone III may have a relationship to the bedrock geology lying east of the gold targets. The highest gold grades in both drilling and surface sampling have come from the north end of Argo, along the western flank of a significant accumulation of flow-laminated dacite. The Khoyor Mod target comprises a 250 m x 300 m area of quartz stockwork, which is anomalous in gold (trace to 0.58 g/t) and copper (67–505 ppm) and displays some characteristics of porphyry-style mineralisation. This target requires drill testing.
1.19 | Recommendations |
1.19.1 | Development Strategies Oyu Tolgoi Project including the EJV Property, |
The large Mineral Resource base at the entire Oyu Tolgoi project, including the EJV Property represents significant opportunities, not only as an exceptionally long-life project but also for production expansion. Ongoing planning work using Inferred resources has identified the potential for further expansions. The LHTR16 demonstrates the potential for expansion and shows that the EJV resources are an integral part of the long-term development plans.
Separate development decisions will need to be made based on future prevailing conditions and the experience obtained from developing and operating the initial phases of the Oyu Tolgoi project.
Exploration and development of the EJV Property is under the control of the OT LLC. The future work recommendations in the 2014 OTTR although primarily focused on the Oyu Tolgoi licence area, will be of benefit to Entrée as they will include examination of the EJV Property.
The EJV will benefit from continuing study of the Hugo North deposit, including Hugo North Extension. In particular, making use of the additional haulage capacity that is planned to be installed underground could allow for improved performance to accelerate Hugo North Lift 1 production and so bring Hugo North Lift 2 development forward.
The Heruga mining study work is preliminary and should be optimised to maximise the metal extraction and project value. This work should involve a review and definition of the Heruga design followed by iteration of the scheduling options. The outcome of this work will assist the analysis of all the Alternative Production Cases.
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The commencement of mining on Hugo North Lift 1 will provide valuable 'real life' data for mining, processing and other disciplines for improved modelling of Hugo North Lift 2 development and production.
The work on the Alternative Production Cases is not complete, in particular the definition of the expansion sizes and costing of the cases needs additional work. It is recommended that Entrée work with TRQ and OT LLC to study the options further and that the timing of the new mines is defined in more detail.
1.19.2 | Shivee West |
Based on exploration to date, additional work, estimated to cost $6.6 M, is recommended for Shivee West. The recommended work includes:
Precious Metal Exploration – Argo Zone / Zone III:
· | Additional detailed geological mapping and excavator-assisted chip sampling along strike to the north and south of known mineralisation. Expansion and infill of the existing MMI soil sampling to cover in greater detail the magnetic low that is associated with the gold mineralisation. |
· | Dipole–dipole IP surveying, to cover the magnetic anomaly. |
· | 6,000 m of RC and core drilling to infill the core drilling and to follow the Argo mineralisation along strike to the north. |
Porphyry Copper Exploration:
· | Re-evaluation of previous drilling of the Khoyor Mod area. |
· | Evaluation of MMI-Au anomalies north of the Khoyor Mod area. |
· | 6,000 m of core drilling to continue exploration in the Khoyor Mod area and to test strong hydrothermal alteration encountered in EG-10-140. |
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2 | INTRODUCTION |
2.1 | Issuer for Whom Report Prepared |
This report is titled the Lookout Hill Feasibility Study Update (LHTR16) and has been prepared under the management of OreWin Pty Ltd (OreWin) for Entrée Gold Inc (Entrée).
2.2 | Terms of Reference and Purpose of Report |
This report is titled the Lookout Hill Feasibility Study Update (LHTR16). LHTR16 updates the Technical Report 2013 on the Lookout Hill Property (LHTR13) released by Entrée in March 2013. LHTR16 was prepared by OreWin for Entrée and is based on information contained within the Oyu Tolgoi Feasibility Study 2014 (OTFS14) completed in July 2014 by OT LLC and the 2014 Oyu Tolgoi Technical Report (2014 OTTR) released by TRQ in October 2014 and also prepared by OreWin. The OTFS14 has yet to be updated by OT LLC and is the most current completed feasibility study work available.
Unless otherwise indicated, any reference in this report to Hugo North, Hugo Dummett, Lift 1, or Lift 2 is inclusive of Hugo North Extension.
The LHTR16 analyses a Mineral Reserve case only (LHTR16 Reserve Case) and is based on a feasibility quality level study complying with Canadian National Instrument 43-101 (NI 43‑101). The work of the 2014 OTTR meets the standards of US Industry Guide 7 requirements for reporting Reserves.
The underground Mineral Reserves for the Hugo North deposit, including Entrée's Hugo North Extension deposit, were restated by TRQ in the 2014 OTTR.
2.3 | Units of Measure and Currency |
Throughout this report, measurements are in metric units and currency in United States dollars unless otherwise stated.
2.4 | Sources of Information and Study Participants |
LHTR16 was prepared by the QPs as noted on the title and signature pages and was managed by OreWin. Original authors and companies are listed throughout the text.
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2.5 | Site Visits |
The following site visits were carried out by the Qualified Persons:
· | Bernard Peters visited the property in March 2003, July 2003, April 2006, April 2009, July 2010, October 2011, November 2012, 28–31 January 2013, 2–14 December 2013, 16–22 March 2014, 28 October 2014, 23-27 August 2015, 8-10 December 2015 and most recently 23-25 February 2016. Meetings were also attended in Ulaanbaatar with OT LLC and Mongolian authorities to discuss the Project from 2003–2011. Some of these meetings did not include site visits. Other visits were made to OT LLC offices in Mongolia, Australia, and China as part of work on the project. Bernard Peters was the QP for Mineral Reserves in the 2014 OTTR. |
· | Sharron Sylvester visited the property between 28–31 January 2013, 2–14 December 2013, 23-27 August 2015, 8-10 December 2015 and most recently 23-25 February 2016. Other visits were made to OT LLC offices in Mongolia and Australia as part of work on the project. Sharron Sylvester was the QP for Mineral Resources in the 2014 OTTR. |
· | Robert M. Cann has made numerous, regular site visits to the Shivee West and Oyu Tolgoi projects since 2002. Most recently he visited Shivee West in November and December 2014 and Oyu Tolgoi in October 2015.. |
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3 | RELIANCE ON OTHER EXPERTS |
The authors of this report state that they are Qualified Persons for those areas as identified in the appropriate 'Certificate of Qualified Person' attached to this report. The authors have relied upon, and believe there is a reasonable basis for this reliance upon the following experts and reports regarding legal, land tenure, corporate structure, permitting, environmental and other issues in portions of this feasibility study in the Sections as noted below.
Reports used in Section 4, Property Description and Location (report used to affirm the corporate structure and ownership of the licences related to Lookout Hill and Oyu Tolgoi):
· | OT LLC 2014: Oyu Tolgoi Feasibility Study 2014 prepared by OT LLC July 2014. Volumes: |
- | 3.0 | Ownership and Legal |
- | 4.0 | Government and Community Relations |
· | Amendment to Equity Participation And Earn-In Agreement, Entrée Gold Inc, 9 November 2004, Entrée Gold Inc, |
· | Letter from Implementation Agency Of The GOM Mineral Resources Authority, 19 March 2015, No. 6-1672, verification of minerals mining licences MV-015226 and MV-015225, provided by Entrée Gold Inc 26 March 2015. |
· | Letter from Entrée Gold Inc. to OreWin Pty Ltd, 22 March 2016, Re: Lookout Hill Property Licences and Agreement |
Reports used in Section 5, Accessibility, Climate, Local Resources, Infrastructure, and Physiography:
· | OT LLC 2014: Oyu Tolgoi Feasibility Study 2014 prepared by OT LLC July 2014. Volumes: |
- | 3.0 | Ownership and Legal |
- | 5.0 | Human Resources and Capability Development |
- | 7.0 | Environment |
- | 8.0 | Water Management |
Reports used in Section 19, Marketing Studies and Contracts:
· | OT LLC 2014: Oyu Tolgoi Feasibility Study 2014 prepared by OT LLC July 2014. Volumes: |
- | 17.0 | Marketing |
Reports used in Section 20, Environmental Studies, Permitting, and Social or Community Impact:
· | OT LLC 2014: Oyu Tolgoi Feasibility Study 2014 prepared by OT LLC July 2014. Volumes: |
- | 3.0 | Ownership and Legal |
- | 7.0 | Environment |
- | 8.0 | Water Management |
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Reports used in Section 22, Economic Analysis:
· | OT LLC 2014: Oyu Tolgoi Feasibility Study 2014 prepared by OT LLC July 2014. Volumes: |
- | 3.0 | Ownership and Legal |
- | 4.0 | Government and Community Relations |
· | Letter from Implementation Agency Of The GOM Mineral Resources Authority, 19 March 2015, No. 6-1672, verification of minerals mining licences MV-015226 and MV-015225, provided by Entrée Gold Inc 26 March 2015. |
· | Letter from Entrée Gold Inc. to OreWin Pty Ltd, 22 March 2016, Re: Lookout Hill Property Licences and Agreement |
· | Amendment to Equity Participation And Earn-In Agreement, Entrée Gold Inc, 9 November 2004, Entrée Gold Inc, |
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4 | PROPERTY DESCRIPTION AND LOCATION |
OreWin and the QPs of this report have relied exclusively on information provided by Entrée concerning the description of mineral tenure, title to and status of the MLs comprising Lookout Hill, legal and political issues surrounding the EJV Property, and permitting.
4.1 | Lookout Hill Location |
Lookout Hill is located in the aimag (province) of Ömnögovi in the South Gobi region of Mongolia, about 570 km south of the capital city of Ulaanbaatar and 80 km north of the border with China (Figure 4.1). Lookout Hill is centred at approximately latitude 43°02′ N and longitude, 106°45′ E, or UTM coordinates 4,766,000 mN and 644,000 mE, with datum set to WGS-84, Zone 48N. Elevations in the area range between 1,160 m above sea level (masl) and 1,450 masl. Ömnögovi is also spelled Umnugobi or Umnogovi.
The Hugo North Extension is the principal zone of mineralisation defined on Lookout Hill and is where the majority of the exploration drilling has been conducted. This deposit occurs within the Shivee Tolgoi ML of Lookout Hill and is the northernmost defined portion of a north—north-east trending, 12 km long and 1 km wide copper–gold porphyry mineralised corridor that occurs at Lookout Hill and the adjacent Oyu Tolgoi ML. The Hugo North Extension is centred at approximately latitude 43°04′ N and longitude 106°55′ E within the Shivee Tolgoi ML. Surface elevations above the deposit range from approximately 1,160–1,180 masl.
The Heruga deposit is the second significant zone of mineralisation indicated on Lookout Hill and is where the majority of the 2007 and 2008 exploration drilling was conducted. This deposit occurs near the centre of the Javhlant ML (also spelled Javkhlant), south of the Oyu Tolgoi ML, and is at the southern end of the north—north‑east trending, copper–gold porphyry mineralised 'corridor'. The Heruga deposit is centred at approximately latitude 42°58′ N and longitude106°48′ E. Surface elevations range from approximately 1,160–1,170 masl.
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Figure 4.1 | Regional Project Location Map – Lookout Hill |
Figure by Entrée 2016
4.2 | Lookout Hill Property |
Lookout Hill in Mongolia comprises two MLs (Shivee Tolgoi and Javhlant), which cover a total of approximately 62,920 ha and completely surrounds the 8,490 ha Oyu Tolgoi ML, owned 100% by OT LLC. The Shivee Tolgoi and Javhlant MLs are held by Entrée's wholly owned Mongolian subsidiary, Entrée LLC. Lookout Hill is divided into two contiguous areas: (1) the area governed under a joint venture between Entrée and OT LLC (EJV Property), and (2) Shivee West.
The ownership of the Shivee Tolgoi and Javhlant MLs is divided between Entrée and the EJV as described below and in Figure 4.2.
· | The EJV Property comprises 39,807 ha consisting of the eastern portion of the Shivee Tolgoi ML and all of the Javhlant ML, (together the EJV Property) and is governed by a joint venture between Entrée and OT LLC. The EJV Property is contiguous with, and on three sides (to the north, east, and south) surrounds the OT LLC Oyu Tolgoi ML. The EJV Property hosts the Hugo North Extension deposit and the Heruga deposit. Rio Tinto is acting as manager of the Entrée–OT LLC Joint Venture on behalf of OT LLC. |
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· | The portion of Lookout Hill outside of the EJV Property (Shivee West) covers an area of 23,114 ha and consists of the western portion of the Shivee Tolgoi ML. Shivee West is 100% owned by Entrée but is subject to a first right of refusal by OT LLC. |
Entrée and OT LLC pay the IA stabilized rate of $15/ha for both JV licences. The total estimated annual fee in order to maintain both the Shivee Tolgoi and Javhlant MLs in good standing is approximately $0.94 million, of which Entrée's joint venture partner, OT LLC is responsible for approximately $0.48 million. The annual licence fees were paid in September 2015, and both MLs are currently in good standing. A summary of the Lookout Hill licences and their renewal status is shown in Table 4.1.
Table 4.1 | Licence Details – Lookout Hill |
Licence Number | Licence Name | Licence Type | Total Area of Licence (ha) | Licence Award Date | Licence Expiry Date | Date of Annual Licence Payment | Annual Licence Payment ($) |
15226A | Shivee Tolgoi | Mining | 42,592.6 | 27/10/09 | 27/10/39 | 27/10/09 | 638,889 |
15225A | Javhlant | Mining | 20,327.4 | 27/10/09 | 27/10/39 | 27/10/09 | 304,911 |
Total | - | - | 62,920.0 | - | - | - | 943,800 |
1. | Date that the initial 30-year term will expire. |
2. | The Company's Javhlant and Shivee Tolgoi exploration licences were converted to mining licences on 27 October 2009. Fees must be paid prior to the anniversary date. |
3. | The total estimated annual fees to maintain the licences in good standing, which are primarily the responsibility of OT LLC, are approximately $944,000 |
4. | Mining licence fees were revised in February 2015 from $15/ha to MNT21,750/ha. At an exchange rate of approximately MNT1900 per $1.00 this is equivalent to $11.45/ha. Despite the revised licence fees, Entrée and OT LLC continue to pay the IA stabilised rate of $15/ha. |
5. | Shivee Tolgoi ML was reduced by 12,059.99 ha in October 2015. |
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Figure 4.2 | Local Project Map – Lookout Hill |
Figure by Entrée 2016
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4.2.1 | EJV Property |
In October 2004, Entrée entered into an arm's-length Equity Participation and Earn-In Agreement (Earn-In Agreement) with Turquoise Hill Resources Ltd. (TRQ). Under the Earn-In Agreement, TRQ agreed to purchase equity securities in Entrée, and was granted the right to earn an interest in mineralisation extracted from the EJV Property. Most of TRQ's rights and obligations under the Earn-In Agreement were subsequently assigned by it to what was then its wholly-owned subsidiary, OT LLC.
On 30 June 2008, OT LLC gave notice to Entrée that it had completed its earn-in obligations by expending a total of $35 million on exploration on the EJV Property. As a consequence, OT LLC earned an 80% interest in all minerals extracted below a sub-surface depth of 560 m from the EJV Property and a 70% interest in all minerals extracted from surface to a depth of 560 m from the EJV Property. The Earn-In Agreement provides that at such time as OT LLC completes its earn-in obligations, the parties will enter into a joint venture agreement in the form attached to the Earn-In Agreement. While the parties have not formally executed the joint venture agreement, the EJV is operating under those terms.
Under the terms of the EJV, Entrée elected to have OT LLC debt finance Entrée's share of exploration and development costs with interest accruing at OT LLC's actual cost of capital or prime (set by the Royal Bank of Canada) 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'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's share of products in a month less Entrée's share of costs of operations for the month. The debt financing and repayment provisions limit dilution of Entrée's interest as the project progresses. Since formation, and as of 31 December 2015, the EJV has expended $27.8 M to advance the EJV Property. As of 31 December 2015, OT LLC has contributed on Entrée's behalf the required cash participation amount, including interest at prime plus 2%, of $6.8 M, equal to 20% of the $27.8 M incurred to date.
Exploration and development of the EJV Property is under the control of Rio Tinto on behalf of manager OT LLC.
The boundaries of the two MLs (or portions thereof) included within the EJV Property are defined by latitude and longitude coordinates (WGS-84 datum) and by UTM coordinates with datum set to WGS-84, Zone 48N. These boundaries are shown in Figure 4.3 and are listed in Table 4.2.
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Figure 4.3 | Land Tenure Map – Lookout Hill |
Figure by Entrée 2016
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Table 4.2 | ML Boundary Coordinates – EJV Property |
ML | Point ID | Latitude / Longitude (WGS-84 (MONREF-97)) | UTM (WGS-84, Zone 48N) | ||
Latitude (N) | Longitude (E) | Easting (m) | Northing (m) | ||
15226A Shivee Tolgoi ML (eastern portion only) | AA | 43° 08′ 1.4″ | 106° 47′ 31.4″ | 645,752.90 | 4,777,222.00 |
R | 43° 08′ 1.4″ | 107° 00′ 1.5″ | 662,698.85 | 4,777,606.89 | |
F | 43° 00′ 1.4″ | 107° 00′ 1.5″ | 663,051.79 | 4,762,799.00 | |
E | 43° 00′ 1.4″ | 106° 55′ 1.4″ | 656,257.87 | 4,762,640.85 | |
S | 43° 03′ 1.4″ | 106° 55′ 1.4″ | 656,131.02 | 4,768,193.51 | |
T | 43° 03′ 1.4″ | 106° 47′ 31.4″ | 645,950.61 | 4,767,968.55 | |
15225A Javhlant ML | A | 43° 00′ 1.4″ | 106° 36′ 1.4″ | 630,446.14 | 4,762,099.72 |
B | 43° 00′ 1.4″ | 106° 47′ 31.4″ | 646,068.97 | 4,762,415.58 | |
C | 42° 58′ 31.3″ | 106° 47′ 31.5″ | 646,129.37 | 4,759,638.32 | |
D | 42° 58′ 31.3″ | 106° 55′ 1.5″ | 656,322.33 | 4,759,863.28 | |
E | 43° 00′ 1.4″ | 106° 55′ 1.4″ | 656,257.87 | 4,762,640.85 | |
F | 43° 00′ 1.4″ | 107° 00′ 1.4″ | 663,051.79 | 4,762,799.00 | |
G | 42° 55′ 31.4″ | 107° 00′ 1.5″ | 663,250.93 | 4,754,470.41 | |
H | 42° 55′ 31.3″ | 106° 55′ 1.5″ | 656,449.01 | 4,754,310.44 | |
I | 42° 57′ 31.3″ | 106° 55′ 1.5″ | 656,364.58 | 4,758,012.45 | |
J | 42° 57′ 31.3″ | 106° 51′ 31.5″ | 651,606.78 | 4,757,905.58 | |
K | 42° 55′ 31.3″ | 106° 51′ 31.5″ | 651,688.44 | 4,754,203.86 | |
L | 42° 55′ 31.4″ | 106° 44′ 1.5″ | 641,487.14 | 4,753,986.00 | |
M | 42° 57′ 1.4″ | 106° 44′ 1.5″ | 641,430.13 | 4,756,762.59 | |
N | 42° 57′ 1.4″ | 106° 38′ 1.5″ | 633,272.23 | 4,756,599.51 | |
O | 42° 55′ 31.4″ | 106° 38′ 1.5″ | 633,326.19 | 4,753,822.92 | |
P | 42° 55′ 31.4″ | 106° 36′ 1.5″ | 630,605.88 | 4,753,770.63 |
The first point for each ML corresponds with the north-western corner of the ML; remaining points are cited in a clockwise direction. Point ID's are referenced to Figure 4.3.
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4.2.2 | Shivee West |
The boundaries of the portions of the Shivee Tolgoi ML that are 100% held by Entrée are defined by latitude and longitude and UTM coordinates in Table 4.3 and Figure 4.3.
Table 4.3 | ML Boundary Coordinates – Shivee West (100% Entrée) |
ML | Point ID | Latitude / Longitude (WGS-84 (MONREF-97)) | UTM (WGS-84, Zone 48N) | ||
Latitude (N) | Longitude (E) | Easting (m) | Northing (m) | ||
15226A Shivee Tolgoi ML (western portion only: Shivee West) | Q | 43° 08′ 1.4″ | 106° 36′ 1.4″ | 630,163.65 | 4,776,907.04 |
AA | 43° 08′ 1.4″ | 106° 47′ 31.4″ | 645,752.90 | 4,777,222.00 | |
B | 43° 00′ 1.4″ | 106° 47′ 31.4″ | 646,068.97 | 4,762,415.58 | |
A | 43° 00′ 1.4″ | 106° 36′ 1.4″ | 630,446.14 | 4,762,099.72 |
The first point ('Q') corresponds with the north-western corner of the ML; remaining points are cited in a clockwise direction. Point ID's are referenced to Figure 4.3.
4.2.3 | Lookout Hill Survey |
The original MLs within Lookout Hill were legally surveyed in October 2007 by Aerogeodez from Ulaanbaatar and the corners marked with steel posts. The adjacent Oyu Tolgoi ML was legally surveyed in August 2002 by Surtech International Ltd. using the internationally recognised survey datum WGS-84, Zone 48N. In September 2004, Geomaster Co. Ltd. (Geomaster), a licenced Mongolian land survey company, re-surveyed the Oyu Tolgoi ML corner points based on the official Mongolian survey datum 'MSK42' and marked the corners with concrete and steel pylons. In November 2004, Geomaster also surveyed the northern boundary between the Oyu Tolgoi ML and Entrée's Shivee Tolgoi ML and marked it with wooden posts at 250–500 m intervals.
In September 2011, Geomaster completed another survey of the Shivee Tolgoi and Javhlant MLs (15226A and 15225A, respectively) using the newly instated official Mongolian survey datum MONREF-97. During this survey the corner posts were checked for accuracy as compared to the new MONREF-97 coordinates released by the Cadastre Office earlier in 2010. As of mid-November 2011, all posts were cemented in place for the Shivee Tolgoi and Javhlant MLs.
In November 2015, Geocad LLC officially surveyed and cemented new boundary posts along the new western-most boundary of the Shivee Tolgoi ML after the licence area was voluntarily reduced in October 2015.
4.3 | Mining Titles in Mongolia |
In Mongolia, Mining Licences (MLs) may be granted for up to 30 years, plus two subsequent 20-year terms (cumulative total of 70 years).
After issuance of a ML, holders are required to pay to the Mongolian Government an annual licence fee. Historically, the annual licence fee was $15.00 per hectare. In February 2015, the Mineral Resources Authority of Mongolia (MRAM) set the per hectare fee at 21,750 MNT, equivalent to approximately $11.45 at the late 2015 exchange rate. Entrée and OT LLC continue to pay the IA stabilized rate of $15/ha for both JV licences.
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To maintain the MLs, licence owners must submit, and have accepted, an updated reserve report and feasibility study, prepared by authorised consultants, to the MMC every 5 years. OT LLC last submitted a reserve report to the MMC in July 2014 and an updated feasibility study (OTFS14) in August 2014. Both statutory studies have been approved by the MMC.
All phases of the Company's operations are subject to the Minerals Law of Mongolia, Land Law, and the Law on Environmental Protection as well as the various Taxation Laws. Mongolian Mining Law allows Entrée, through grant of the MLs, the right to access and explore the land covered by the MLs, subject to land use agreements with the local soums (the local Mongolian equivalent of a township or district) or Aimag and the payment of land use fees. Under the requirements of the Minerals Law of Mongolia ML holders need to file a feasibility study that meets the GOM requirements for a feasibility study every five years.
In Mongolia, exploration requires filing an annual exploration work plan at the beginning of the year and provision of a summary report to the local soum. The Lookout Hill property is affiliated with two soums, Khanbogd and Bayan-Ovoo (Figure 4.1). A second report that includes a discussion of environmental impacts must also be filed upon the conclusion of activities. In addition, companies are required to post a bond equal to 50% of the total estimated cost of any anticipated environmental reclamation, which is refunded upon completion of the reclamation work.
A copy of the environmental plan must be delivered to the local soum (but is not approved by the soum) and the environmental bond is placed with a soum government account. MLs require further environmental and social studies in the form of an environmental impact assessment (EIA) and annual environmental protection plan (EPP) when the licence is granted. The soums must also be compensated for water and road usage. Such payments are computed at the end of each calendar year based on the extent of use. Even if the Company relinquishes its licences, it remains responsible for any required reclamation. Entrée states that at the time of this report, it is in compliance with all environmental requirements.
There are few inhabitants living within the boundaries of the Lookout Hill property and no towns or villages. The people who do live there are mostly nomadic herders. Entrée has engaged in small programmes of basic infrastructure improvements to assist the nearby communities in the vicinity of the Lookout Hill property. In addition, Entrée maintains close contact with the soums as part of their community relations efforts. Entrée has reported that it is fully compliant with the relevant Mongolian exploration regulations.
4.4 | Strategic Deposits and Investment Agreement |
The Minerals Law of Mongolia (2006) defines a mineral deposit of strategic importance (Strategic Deposit) as a mineral resource that may have the potential to impact national security, or the national economic and social development of Mongolia, or that is generating or has the potential to generate more than five percent (5%) of Mongolia's gross domestic product in any given year. Under Resolution No 57 dated 16 July 2009 of the State Great Khural, the Oyu Tolgoi series of deposits were declared to be Strategic Deposits.
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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 6 October 2009, TRQ, its wholly-owned subsidiary OT LLC, and Rio Tinto signed an Investment Agreement (IA) with the GOM, 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 IA specifies that the GOM will own 34% of the shares of OT LLC (and by extension, 34% of OT LLC's interest in the EJV Property) through its subsidiary Erdenes Oyu Tolgoi LLC.. A shareholders' agreement was concurrently executed to establish the Government's 34% ownership interest in OT LLC and to govern the relationship among the parties.
The contract area defined in the IA includes the Javhlant and Shivee Tolgoi MLs, including Shivee West. The Ministry of Mining has advised Entrée that it considers the Hugo North Extension and Heruga deposits on the EJV Property to be part of the series of Oyu Tolgoi deposits which were declared to be Strategic Deposits in 2009. However, at the time of negotiation of the IA, Entrée was not made a party to the IA, and as such does not have any direct rights or benefits under the IA.
OT LLC agreed, under the terms of the Earn-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 IA or a separate stability agreement on substantially similar terms to the IA. Entrée has been in ongoing constructive discussions with stakeholders of the Oyu Tolgoi project, including the GOM, OT LLC, TRQ, and Rio Tinto, since February 2013. The discussions to date have focussed on issues arising from Entrée's exclusion from the IA, including the fact that the GOM does not have a full 34% interest in the EJV Property; the fact that the EJV MLs are held by Entrée LLC rather than OT LLC; and the fact that Entrée does not benefit from the stability that it would otherwise have if it were a party to the IA. In order to receive the benefits of the IA, the GOM may require Entrée to agree to certain concessions, including with respect to the ownership of the EJV, Entrée LLC or the economic benefit of Entrée's interest in the EJV, or the royalty rates applicable to Entrée's share of the EJV mineralisation. No agreements have been finalised.
4.5 | Royalties |
Royalties potentially payable to the GOM are governed by Article 47 of the Minerals Law of Mongolia. Pursuant to the Minerals Law, the GOM assesses royalties of:
· | 5% on the sale value of all metallic minerals (except placer gold) mined in the country. |
· | 2.5% of the sales value of gold extracted from placer (if sold to authorised banks or the Central Bank). |
· | 2.5% on coal and common Mineral Resources. |
On 1 January 2011, a surtax royalty came into effect in Mongolia. The rates of the surtax royalty vary from 1% to 5% for minerals other than copper. For copper, the surtax royalty rates range between 22% and 30% for ore, between 11% and 15% for concentrates, and between 1% and 5% for final products. No surtax royalty is charged on any minerals below a certain threshold market price, which varies depending on the type of minerals. This is in addition to the standard royalty rates of 2.5% for coal sold in Mongolia and commonly occurring minerals sold in Mongolia, and 5% for all other minerals.
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The surtax royalty does not apply to OT LLC as a result of the stability provided under the IA. Entrée is not presently a party to the IA. Unless and until Entrée finalises agreements with the GOM and other Oyu Tolgoi stakeholders, there can be no assurance that Entrée will be entitled to all of the benefits of the IA, including stability with respect to taxes and royalties payable. If Entrée is not entitled to all of the benefits of the IA, it could be subject to the surtax royalty with respect to mineral production from the EJV. The surtax royalty would apply to any mineral production from Shivee West, which is 100% owned by Entrée.
On 18 February 2015, the Mongolian Parliament adopted the Amendment Law to the Minerals Law of 2006 (2015 Amendment), which purports to allow a licence holder to negotiate with the GOM with respect to an exchange of the Government's 34% equity interest in a licence holder with a Strategic Deposit for an additional royalty payable to the GOM. The amount of the royalty payment would vary depending on the Strategic Deposit. The full impact of the 2015 Amendment is not yet known.
4.6 | Permits |
4.6.1 | Overview - EJV Property |
The Mongolian Minerals Law (2006) and Mongolian Land Law (2002) govern OT LLC's exploration, mining, and land use rights for the Project. Water rights are governed by the Mongolian Water Law and the Mongolian Minerals Law. These laws allow licence holders to use the land and water in connection with exploration and mining operations, subject to the discretionary authority of Mongolian national, provincial, and regional governmental authorities as granted under Mongolian law.
OT LLC has studied and continues to study the permitting and approval requirements for the development of the Oyu Tolgoi project including the EJV Property and maintains a permit and licencing register.
OT LLC personnel, working with the Mongolian authorities, have developed descriptions of the permitting processes and procedures for the Oyu Tolgoi project, including the underground development of the EJV Property. Key permits have already been obtained and with a small number of permits still in process. OT LLC has advised that it expects that all permits will be obtained in a suitable time frame for the underground project development. Under the terms of the IA, a working group consisting of OT LLC and government representatives has been formed to assist in the permitting process.
Further requirements for environmental impact assessment are discussed below.
4.6.2 | Environment Permits – EJV Property |
Holders of a ML 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 (EIA) for mining proposals, submitting an annual environmental protection plan (EPP), posting an annual bond against completion of the protection plan and submitting an annual environmental report.
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OT LLC 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. OT LLC pays to the Khanbogd Soum annual fees for water and road usage, while sand and gravel use fees are paid to the Aimag government in Dalanzadgad.
OT LLC has completed a comprehensive Environmental and Social Impact Assessment (ESIA) for the Oyu Tolgoi project, including the EJV Property. The culmination of nearly 10 years of independent work and research carried out by both international and Mongolian experts, the ESIA identifies and assesses the potential environmental and social impacts of the project, including cumulative impacts, focusing on key areas such as biodiversity, water resources, cultural heritage, and resettlement.
The ESIA also sets out measures through all project phases to avoid, minimise, mitigate, and manage potential adverse impacts to acceptable levels established by Mongolian regulatory requirements and good international industry practice, as defined by the requirements of the Equator Principles, and the standards and policies of the International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), and other financing institutions. The IFC and the EBRD have similar, but not identical, definitions for the scope of an impact assessment. Both institutions frame assessments in terms of a project's 'area of influence'. The guidance provided by both IFC and the EBRD was utilised in defining the scope of the ESIA. The Oyu Tolgoi ESIA builds upon an extensive body of studies and reports, and Detailed Environmental Impact Assessments (DEIAs) that have been prepared for project design and development purposes, and for Mongolian approvals under the following laws:
· | The Environmental Protection Law (1995) |
· | The Law on Environmental Impact Assessment (1998, amended in 2001) |
· | The Minerals Law (2006) |
These initial studies, reports and DEIAs were prepared over a six-year period between 2002 and 2008.
The original DEIAs provided baseline information for both social and environmental issues. These DEIAs covered impact assessments for different project areas, and were prepared as separate components to facilitate technical review as requested by the GOM.
The original DEIAs were in accordance with Mongolian standards and while they incorporated World Bank and IFC guidelines, they were not intended to comprehensively address overarching IFC policies such as the IFC Policy on Social and Environmental Sustainability, or the EBRD Environmental and Social Policy.
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OT LLC has commenced the development and implementation of an environmental management system (EMS) that conforms to the requirements of ISO 14001:2004. Implementation of the EMS during the construction phases will focus on the environmental policy; significant environmental aspects and impacts and their risk prioritisation; legal and other requirements; environmental performance objectives and targets; environmental management programmes; and environmental incident reporting. The EMS for operations will consist of detailed plans to control the environmental and social management aspects of all project activities following the commencement of commercial production in 2013.
Following submission and approval of the initial DEIAs, the GOM requested that OT LLC prepare an updated, comprehensive ESIA whereby the discussion of impacts and mitigation measures was project-wide and based on the latest project design. The ESIA was also to address social issues, meet GOM (legal) requirements, and comply with current IFC good practice.
For the ESIA the baseline information from the original DEIAs was updated with recent monitoring and survey data. In addition, a social analysis was completed through the commissioning of a Socio-Economic Baseline Study and the preparation of a Social Impact Assessment (SIA) for the project.
The requested ESIA, completed in 2012, combines the DEIAs, the project SIA, and other studies and activities that have been prepared and undertaken by and for OT LLC.
A summary of the previous DEIAs prepared for the Oyu Tolgoi project, including the EJV Property, are shown in Section 20 along with the additional environmental studies that relate to specific components of the project and that have not required a full-scale Detailed Environmental Impact Assessment (DEIA) have been undertaken to achieve regulatory approvals.
For the purposes of the ESIA, the 'project' constitutes the direct activities that are to be financed and / or over which the project can exert control and influence through the project design, impact management, and mitigation measures. This includes:
· | All Oyu Tolgoi project facilities within the ML area and surrounding 10 km buffer zone, including the following key features: |
- | Open pit mining facilities |
- | Underground mining facilities |
- | Accommodation camps |
- | Construction-related activities and facilities, including concrete batch plant, quarry, and laydown areas |
- | Power generation facilities |
- | Heating plant and boilers |
- | Crusher |
- | Concentrator |
- | Tailings storage facility |
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- | Water management facilities (including diversion of the Undai River) |
- | Waste water management facilities for camps and mining operations |
- | Waste management facilities (municipal and industrial) |
- | Waste rock storage facilities |
- | Access roads within the ML area |
- | Vehicle and equipment maintenance and repair facilities |
- | Fuel storage facilities |
- | Electrical power distribution infrastructure |
- | Administration buildings and catering facilities |
· | Specific infrastructure facilities and disturbances within the EJV licences include: |
- | Concrete batch plant and quarry |
- | Permanent airport facility and temporary airstrip at Khanbumbat |
- | Gunii Hooloi water supply pipeline |
- | Drill pads |
- | Road to border with China |
- | Power lines |
· | Contractor accommodation camps adjacent to Khanbogd. |
· | Potential dedicated off-site worker accommodation planned for Khanbogd. |
· | Gunii Hooloi water abstraction borefield and the water pipeline supplying the mine, as well as maintenance roads, pumping stations, construction camps, storage lagoons, and other support infrastructure. |
· | Infrastructure improvements (and associated resource use) by Oyu Tolgoi between the mine site and the Chinese border, including the 220 kV power transmission line, the access road that will be used for concentrate export, construction camps, local water boreholes, and borrow pits. |
· | Dedicated border crossing at Gashuun Sukhait for the exclusive use of the Oyu Tolgoi Project. |
- | The concentrate will be sold by Oyu Tolgoi at the Mongolia–China border crossing at Gashuun Sukhait. The point of sale marks a key boundary to the project area. |
- | Infrastructure components that may be transferred to third-party ownership in the future. |
A number of infrastructure components of the project considered within the ESIA will be constructed by OT LLC but may be transferred at some stage to public or third party operation and / or ownership. Transfer of these infrastructure components to public operation and ownership will limit the degree of control that OT LLC can exert over their management and operation. These infrastructure components, which may be owned and operated by the GOM and will or may be used by members of the public and / or other commercial operations, include:
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· | The permanent airport, which is planned to be handed over to the GOM after the completion of the project construction phase. |
· | The road from Oyu Tolgoi to the Chinese border at Gashuun Sukhait, which follows the alignment for the designated national road and is planned to be handed over to the GOM upon completion of the project construction phase. |
· | The dedicated border crossing facility at Gashuun Sukhait, which will be operated by the Mongolian authorities. |
· | The 220 kV electricity transmission line from the Chinese border to Oyu Tolgoi, was transferred to the GOM in October 2015. |
4.6.2.1 | Future Project Elements Not Directly Addressed in the ESIA |
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 tpd to 160,000 tpd. |
· | Long-term project power supply. Under the terms of the IA, OT LLC will, within four years of the commencement of project operations, source its electricity from within Mongolia. OT LLC may develop a coal-fired power plant within the Oyu Tolgoi ML area to provide the required power from Mongolian sources. This development is considered to be an Associated Facility (as defined in IFC-PS1) of the Oyu Tolgoi project and is the subject of a supplemental ESIA to the existing ESIA for the Oyu Tolgoi project. |
While the impacts of these future 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.
4.6.3 | Surface Rights and Permits – Shivee West |
Mongolian Mining Law allows Entrée, through grant of the MLs, the right to access and explore, subject to land use agreements and fees with the local soums (the local Mongolian equivalent of a township or district) or Aimag.
4.6.4 | Environmental and Socio-Economic Issues – Shivee West |
Entrée has reported that it is fully compliant with the relevant Mongolian exploration regulations. All phases of the Company's operations are subject to the Minerals Law of Mongolia, Land Law, and the Law on Environmental Protection as well as the various Taxation Laws. Entrée has engaged in small programmes of basic infrastructure improvements to assist the nearby communities in the vicinity of Lookout Hill. In addition, Entrée maintains close contact with the soums as part of their community relations efforts.
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4.7 | Other Factors and Risks |
In June 2010, the GOM passed Resolution 140, the purpose of which is to authorize the designation of certain land areas for "state special 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 GOM passed Resolution 175, the purpose of which is to authorize the designation of certain land areas for "state special 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 MLs 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 OT LLC and an affected licence holder, the application of Resolution 175 to the land area covered by the access agreement will be unnecessary. OT LLC has existing access and surface rights to the EJV Property pursuant to the Earn-In Agreement. If Entrée is unable to reach a consensual arrangement with OT LLC with respect to Shivee West, Entrée'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 IA contains provisions restricting the circumstances under which the Shivee Tolgoi and Javhlant MLs may be expropriated. As a result, Entrée considers that the application of Resolution 140 and Resolution 175 to the EJV Property will likely be considered unnecessary.
In March 2014, the GOM passed Resolution 81, the purpose of which is to approve the direction of the railway line heading from Ukhaa Khudag coal deposit located in the territory of Tsogttsetsii soum, Ömnögovi Aimag, to the border port of Gashuun Shukhait 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 MRAM that the base structure overlaps with a portion of the Javhlant ML. 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 ML, 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 IA contains provisions restricting the circumstances under which the Javhlant ML 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.
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On February 27, 2013, notice was delivered to Entrée by MRAM advising that any transfer, sale or lease of the Shivee Tolgoi and Javhlant mining licences is temporarily restricted. While Entrée was subsequently advised that the temporary transfer restriction on the mining licences will be lifted, it has not received official notification of the lifting of the restriction.
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5 | ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY |
5.1 | Access and Infrastructure |
Lookout Hill is located in the Aimag Province of Ömnögovi in the South Gobi region of Mongolia, about 570 km south of the capital city of Ulaanbaatar and 80 km north of the border with China (Figure 4.1).
Lookout Hill is centred at approximately latitude 43°02' N and longitude 106°45' E, or UTM coordinates 4,766,000 mN and 644,000 mE, with datum set to WGS-84, Zone 48N. Elevations within the project area range between 1,160 m above sea level (masl) and 1,450 masl.
The topography largely consists of gravel covered plains, with low hills along the northern and western lease borders. Small, scattered rock outcrops and colluvial talus are widespread within the northern, western, and southern parts of the Lookout Hill property.
The EJV property hosts the northernmost and southernmost deposits in a series of copper–gold mineralised deposits in a Palaeozoic porphyry system.
The Hugo North Extension deposit is the principal zone of mineralisation defined on the EJV Property and is where the majority of the exploration drilling has been conducted. The Hugo North Extension is centred at approximately latitude 43°04' N and longitude 106°55' E within the Shivee Tolgoi ML. Surface elevations above the deposit range from approximately 1,160–1,180 masl.
The Heruga deposit is the second significant zone of mineralisation indicated at Lookout Hill and is where the majority of the 2007 and 2008 exploration drilling was conducted. The Heruga deposit is centred at approximately latitude 42°58' N and longitude 106°48' E. Surface elevations range from approximately 1,160–1,170 masl.
5.1.1 | Regional Centres and Infrastructure |
There are a number of communities in the South Gobi region. The most prominent is Dalanzadgad, population 15,000, which is the administrative centre of the Ömnögovi Aimag and is 200 km north-west of Lookout Hill. Facilities at Dalanzadgad include a regional hospital, tertiary technical colleges, a domestic airport, and a 6 MW capacity coal-fired power station. A paved road connects Dalanzadgad to Ulaanbaatar. OT LLC envisions that Dalanzadgad may be suitable as a regional centre for recruiting and training. The closest community to Lookout Hill is Khanbogd, the centre of the Khanbogd soum. Khanbogd has a population of approximately 7,000 and is 35 km to the east. Other communities relatively near to Lookout Hill include Mandalgovi (population 13,500), the capital of the Dundgovi aimag, 310 km north of the project on the road to Ulaanbaatar, Bayan-Ovoo (population 1,700), 55 km to the west, Tsogttsetsii (population approximately 6,000), 130 km north-west, and Manlai (population 2,400), 150 km to the north.
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5.1.2 | Transportation Infrastructure |
Road access to Lookout Hill follows well-defined paved and dirt tracks directly south from Ulaanbaatar requiring approximately 8 to 12 hours travel time in a four wheel drive vehicle. The Mongolian rail service and a large electricity power line lie 350 km east of the property at the main rail line between Ulaanbaatar and China. The China–Mongolia border is located approximately 80 km south of Lookout Hill. OT LLC has constructed a 105 km road from the site to the border. OT LLC constructed a 220 kV transmission line connecting to the Chinese (Inner Mongolian) grid. This line has the capacity to supply all of Oyu Tolgoi project's power needs. The Government of China has a highway to the Mongolian border, which provides a direct link between the border south of the Oyu Tolgoi project and the trans-China railway system.
OT LLC has constructed a 3.25 km concrete airstrip and the site is serviced by charter and scheduled flights to and from Ulaanbaatar. Ulaanbaatar has an international airport, and Tsogttsetsii, and Dalanzadgad each have regional airports. The closest regional airport in China is at Hohhot. There are no airport facilities at Wuyuan or Bayan Obo.
A standard gauge, 220 km long railway is under construction by the GOM from the Tavan Tolgoi coal project to the Chinese border at Gashuun Sukhait and will pass across the southwest corner of Lookout Hill. Railway construction is currently halted but could be completed by 2018 if funding is finalised.
5.1.3 | Power Supply |
OT LLC has a Power Purchase Agreement with the Inner Mongolia Power Corporation to supply power to Oyu Tolgoi, including the EJV Property. The term of this agreement covers the commissioning of the business plus the initial four years of commercial operations.
In August 2014, TRQ announced that OT LLC had signed a Power Sector Cooperation Agreement (PSCA) with the GOM for the exploration of a Tavan Tolgoi based independent power producer (IPP). The aim of the PSCA is to lay out a framework for long-term strategic cooperation between the GOM and OT LLC for a comprehensive energy plan for the South Gobi region. Participation in the PSCA meets OT LLC's obligation in the IA to establish a long-term power supply within Mongolia within four years from the commencement of commercial production from the open pit mine. Signing of a PSCA has reset the four years obligation while the opportunity for the establishment of an IPP at Tavan Tolgoi is studied.
The PSCA provides a framework for a broad range of power-related issues, including the establishment of a power generation source, transmission lines, and power imports. The centrepiece of the PSCA is an open, international tender process to identify and select an IPP to privately fund, construct, own, and operate a power plant to supply electricity, with Oyu Tolgoi (including the EJV Property) as the primary consumer.
OT LLC have stated it plans to actively participate in the processes of the PSCA to ensure that there is a timely and reliable power supply solution for Oyu Tolgoi (including the EJV Property) and this approach is endorsed. In May 2015, as part of the agreement between stakeholders for the UDP, OT LLC committed to providing working assumptions for a financing plan towards supporting a long term power agreement with a Tavan Tolgoi power station.
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