Entree Resources Ltd. press release

Entrée Resources Reports Updated Feasibility Study for its Interest in the Entrée/Oyu Tolgoi Joint Venture Property

2021-06-15

TSX - Toronto Stock Exchange · Copper · Gold · Silver · Molybdenum · Canada · Technical Studies

Canada NewsWire

Entrée/Oyu Tolgoi JV Property Highlights:

Hugo North Extension Lift 1 Updated Reserve Case After-Tax NPV (8%) of $114 million ( CAD$139 million *) Hugo North Extension Lift 2 Preliminary Economic Assessment After-Tax NPV (8%) of$306 million ( CAD$372 million *) First development production from Hugo North Extension Lift 1 expected in 2022 Significant leverage to copper price as Reserve Case and Preliminary Economic Assessment use $3.25 /lb copper

_( All figures are in US dollars unless otherwise noted; converted at USD:CAD exchange rate of 1.215)

VANCOUVER, BC , June 15, 2021 /CNW/ - Entrée Resources Ltd. (TSX: ETG) (OTCQB: ERLFF) (the " Company " or " Entrée ") is pleased to announce the results of an updated Feasibility Study that was completed on its interest in the Entrée/Oyu Tolgoi joint venture property (the " Entrée/Oyu Tolgoi JV Property "). Entrée has a 20% or 30% participating interest (depending on the depth of mineralization) in the joint venture (the " Entrée/Oyu Tolgoi JV ") with Oyu Tolgoi LLC (" OTLLC ") holding the remaining 80% or 70% interest. The Entrée/Oyu Tolgoi JV Property comprises a significant portion of the long-life, high-grade Oyu Tolgoi copper-gold mining project in Mongolia .

Mr. Stephen Scott , Entrée's President and CEO comments, "We are pleased to report updated information that aligns Entrée's disclosure with that of other Oyu Tolgoi project stakeholders on development of the first lift of the underground mine. Even more exciting is that, based on OTLLC's 2020 Oyu Tolgoi Feasibility Study, first Lift 1 development production on the Entrée/Oyu Tolgoi JV Property is expected to commence in 2022. What has historically seemed like a long way out is very fast becoming a reality. Coincident with receiving first development production, Entrée will retain 10% of the available cash flow from the sale of its share of production until its share of joint venture costs is repaid in accordance with the terms of the Joint Venture Agreement. We are also looking forward to completion of Panel 1 optimization studies currently underway that have potential to further improve Lift 1 economics for the Entrée/Oyu Tolgoi JV."

The updated Feasibility Study (the " 2021 Reserve Case ") is based on mineral reserves attributable to the Entrée/Oyu Tolgoi JV from the first lift (" Lift 1 ") of the Hugo North Extension deposit. Lift 1 of Hugo North (including Hugo North Extension) is currently in development by project operator Rio Tinto as an underground block cave with first development production from Hugo North Extension expected in 2022. By 2030, Oyu Tolgoi is expected to be the fourth largest copper mine in the world. The 2021 Reserve Case aligns the Company's disclosure with that of Turquoise Hill Resources Ltd. (" Turquoise Hill Resources ") with respect to OTLLC's 2020 Oyu Tolgoi Feasibility Study (" OTFS20 ") completed on Hugo North (including Hugo North Extension) Lift 1 (see Turquoise Hill Resources' press release dated July 2, 2020 ).

Entrée is also reporting the results of a Preliminary Economic Assessment (" 2021 PEA ") on a conceptual second lift (" Lift 2 ") of the Hugo North Extension deposit. The 2021 PEA is based on Indicated and Inferred Mineral Resources from Lift 2, as the second potential phase of development and mining on the Hugo North Extension deposit. Lift 2 is directly below Lift 1 (see Figure 2 below). There is no overlap in the Mineral Reserves from the 2021 Reserve Case and the Mineral Resources from the 2021 PEA. Development and capital decisions will be required for the eventual development of Lift 2 once production commences at Hugo North Extension Lift 1.

LOM highlights of the production and financial results from the 2021 Reserve Case and the 2021 PEA are summarized in Table 1.

Table 1. Summary LOM Production and Financial Results – Entrée/Oyu Tolgoi JV Property

| Entrée/Oyu Tolgoi JV Property | Units | 2021 Reserve Case | 2021 PEA | | Attributable Financial Results | | | | | Cash Flow, pre-tax | US$M | 381 | 1,982 | | NPV(5%), after-tax | US$M | 160 | 541 | | NPV(8%), after-tax | US$M | 114 | 306 | | NPV(10%), after-tax | US$M | 91 | 213 | | | | | | | LOM Recovered Metal | | | | | Copper Recovered | Mlb | 1,249 | 4,564 | | Gold Recovered | koz | 549 | 2,025 | | Silver Recovered | koz | 3,836 | 15,067 | | | | | | | LOM Processed Material | | | | | Probable Reserve Feed | | 40 Mt @ 1.53% Cu, 0.53 g/t Au, 3.6 g/t Ag | ---- | | Indicated Resource Feed | | ---- | 77.9 Mt @ 1.35% Cu, 0.49 g/t Au, 3.6 g/t Ag (1.64% CuEq) | | Inferred Resource Feed | | ---- | 87.8 Mt @ 1.35% Cu, 0.49 g/t Au, 3.6 g/t Ag (1.64% CuEq) |

| Notes: | | - Long term metal prices used in the net present value ("NPV") economic analyses for the 2021 Reserve Case and the 2021 PEA are: copper $3.25/lb, gold $1,591.00/oz, silver $21.08/oz. Mineral Reserves in the 2021 Reserve Case, and Mineral Resources in the 2021 PEA mine plan are reported on a 100% basis. Entrée has a 20% interest in the above processed material and recovered metal. The Mineral Reserves that form the basis of the 2021 Reserve Case are from a separate portion of the Hugo North Extension deposit than the Mineral Resources in the 2021 PEA. Copper equivalent ("CuEq") is calculated as shown in the footnote to Table 11 – Entrée/Oyu Tolgoi JV Property Mineral Resources in this press release. 2021 Reserve Case cash flows are discounted to the beginning of 2021. 2021 PEA cash flows are discounted to the beginning of 2027, the beginning of Hugo North Lift 2 development. Attributable Entrée JV production begins in 2031 and ramps up to stable production in 2043. Final Entrée JV attributable production concludes in 2056. The 2021 Reserve Case and 2021 PEA are exclusive of each other. Indicated and Inferred Resource average expected run-of-mine feed grade of 1.35% copper, 0.49 g/t gold, and 3.6 g/t silver (1.64% CuEq) includes dilution and mine losses. |

The economic analysis in the 2021 PEA is based on a conceptual mine plan and does not have as high a level of certainty as the 2021 Reserve Case. The 2021 PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves, and there is no certainty that the 2021 PEA will be realized. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.

In both the 2021 Reserve Case and the 2021 PEA, Entrée is only reporting the production and cash flows attributable to the Entrée/Oyu Tolgoi JV Property, not production and cash flows for other Oyu Tolgoi project areas owned 100% by OTLLC. The production and cash flows from the 2021 Reserve Case and the 2021 PEA are from separate parts of the Hugo North Extension deposit and there is no overlap of the mineralization.

Both the 2021 Reserve Case and the 2021 PEA are based on information supplied by OTLLC or reported within OTFS20. OTFS20 discusses the mine plan for Lift 1 of the Hugo North (including Hugo North Extension) underground block cave on both the Oyu Tolgoi mining licence and the Entrée/Oyu Tolgoi JV Property. Rio Tinto is managing the construction and eventual operation of Lift 1, as well as any future development of Lift 2 or other deposits on the Entrée/Oyu Tolgoi JV Property.

The results of the 2021 Reserve Case and the 2021 PEA will be summarized by Wood Canada Limited (" Wood ") in a National Instrument (" NI ") 43-101 Technical Report that will be filed under the Company's SEDAR profile at www.sedar.com within 45 days of this news release and on the Company's website.

The Lift 1 mine design presented in OTFS20 and the 2021 Reserve Case are subject to future refinements and updates. Hugo North (including Hugo North Extension) Lift 1 surface and underground drilling programs are ongoing to support the evaluation by OTLLC of different design and sequencing options for Panels 1 and 2 as part of OTLLC's planned Pre-Feasibility and Feasibility level work. The Hugo North Extension deposit is located at the northern portion of Panel 1.

Neither OTFS20 nor the results of the 2021 Reserve Case and 2021 PEA reflect the impacts of the COVID-19 pandemic, which are ongoing and continue to be assessed by OTLLC. In particular, progress on Shafts 3 and 4 has been delayed and the overall impact of these delays is under review by OTLLC. Shafts 3 and 4 are required to support production from Panels 1 and 2 during ramp up to 95,000 tonnes per day (" tpd ").

On December 18, 2020 , Turquoise Hill Resources announced that a Definitive Estimate that refines the analysis in OTFS20 and broadly confirms the economics and assumptions presented therein has been completed and delivered to OTLLC by Rio Tinto. The Company has not received a copy of the Definitive Estimate and it was not reviewed or relied upon in the preparation of the 2021 Reserve Case or the 2021 PEA. According to Turquoise Hill Resources, the Definitive Estimate assumes COVID-19 related restrictions in 2021 that are no more stringent than those experienced in September 2020 . Should COVID-19 constraints continue beyond 2021, should the COVID-19 situation escalate in 2021 leading to additional restrictions, or should COVID-19 related restrictions or other non-technical criteria result in a delay in commencement of the undercut, which is currently scheduled for mid-2021, the development costs and schedule in OTFS20 and the 2021 Reserve Case and 2021 PEA could be negatively impacted.

Entrée/Oyu Tolgoi JV Property

The Entrée/Oyu Tolgoi JV Property comprises a significant portion of the overall Oyu Tolgoi project area, including the Hugo North Extension copper-gold deposit on the Shivee Tolgoi mining licence, the Heruga copper-gold-molybdenum deposit on the Javhlant mining licence and a large prospective land package with numerous priority exploration targets (Figure 1). Entrée has a 20% participating interest in the currently defined mineralization within the Entrée/Oyu Tolgoi JV with OTLLC holding the remaining 80% interest. Entrée has a 30% participating interest in any new mineralization that could be discovered between surface and a depth of 560 metres (" m "). OTLLC has a 100% interest in other Oyu Tolgoi project areas, including the Oyut open pit, which is currently in production, and the Hugo North and Hugo South deposits on the Oyu Tolgoi mining licence.

[](https://mma.prnewswire.com/media/1533014/Entr_e_Resources_Entr_e_Resources_Reports_1.html)

| Notes: Entrée has a 20% carried interest in the Hugo North Extension and Heruga mineral resources. Shivee West is subject to a License Fees Agreement between Entrée and OTLLC and may ultimately be included in the Entrée/Oyu Tolgoi JV Property. Outlines of mineral deposits are projected to surface. |

The Hugo North Extension deposit (Lift 1 and Lift 2) The Heruga copper-gold-molybdenum deposit is at the south end of the Oyu Tolgoi trend of porphyry deposits. Approximately 93% of the Heruga deposit occurs on the Entrée/Oyu Tolgoi JV Property where Inferred Mineral Resources include, 1, 448 Mt grading 0.41% copper, 0.40 g/t gold, 1.5 g/t silver and 120 parts per million (" ppm ") molybdenum (0.68% CuEq*). While Heruga is not included in the 2021 PEA, it provides opportunity for future exploration and potential development.

| *CuEq for Hugo North Extension and Heruga is calculated as shown in the footnote to Table 11 in this press release. |

Figure 2 shows a north-south oriented, west-looking cross section through the 12.4 kilometre (" km ") trend of porphyry deposits that comprise the Oyu Tolgoi project. The Entrée/Oyu Tolgoi JV Property is to the right (north) and left (south) of the central portion, the Oyu Tolgoi mining licence, held 100% by OTLLC. The mineralization that is included in the mine plans for the 2021 Reserve Case and the 2021 PEA, is shown on Figure 2.

[](https://mma.prnewswire.com/media/1533015/Entr_e_Resources_Entr_e_Resources_Reports_2.html)

| Note: The infrastructure shown for Heruga is conceptual and was used only to assess reasonable prospects for eventual economic extraction. |

Below are some of the key financial assumptions and outputs from the 2021 Reserve Case and the 2021 PEA. All figures shown for both cases are reported on a 100% Entrée/Oyu Tolgoi JV basis, unless otherwise noted. Both cases assume long term metal prices of $3.25 /lb copper, $1,591 /oz gold, and $21.08 /oz silver.

2021 Reserve Case Outputs:

Entrée/Oyu Tolgoi JV Property development production from Hugo North Extension Lift 1 scheduled to start in 2022 with the first draw bell in 2026, peak production in 2034, and final production in 2038 17-year Lift 1 mine life (" LOM ") production (includes 4-years development production followed by 13-years block cave production; Figure 3) Maximum production rate of approximately 25,000 tpd, which is blended with production from OTLLC's Oyut open pit deposit and Hugo North deposit to supply a maximum mill throughput rate of 125,000 tpd Total recovered metal over the LOM of Hugo North Extension Lift 1: 1,249,000 lbs copper, 549,000 oz gold, 3,836,000 oz silver Total direct development and sustaining capital expenditures of approximately $275.7 million ( $55.1 million attributable to Entrée) Entrée LOM average cash cost $1.74 /lb payable copper Entrée LOM average cash costs after credits (" C1 ") $0.85 /lb payable copper Entrée LOM average all-in sustaining costs (" AISC ") $1.36 /lb payable copper

[](https://mma.prnewswire.com/media/1533016/Entr_e_Resources_Entr_e_Resources_Reports_3.html)

| Note: Year 2 represents approximately 2022. |

2021 PEA Outputs:

Entrée/Oyu Tolgoi JV Property development production from Hugo North Extension Lift 2 scheduled to start in approximately 2034 with the first draw bell in 2038, peak production in 2047 and final production in 2055 22-year Lift 2 mine life (4-years development production and 18-years block cave production; Figure 4) Maximum production rate of approximately 40,500 tpd, which is blended with production from OTLLC's Oyut open pit deposit and Hugo North deposit to supply a maximum mill throughput rate of 125,000 tpd Total metal production over the LOM of Hugo North Extension Lift 2: 4,564,000 lbs copper, 2,025,000 oz gold, 15,067,000 oz silver Total direct development and sustaining capital expenditures of approximately $1,589.6 million ( $319.7 million attributable to Entrée) Entrée LOM average cash cost $1.10 /lb payable copper Entrée LOM average C1 $0.30 /lb payable copper Entrée LOM average AISC $0.92 /lb payable copper

[](https://mma.prnewswire.com/media/1533017/Entr_e_Resources_Entr_e_Resources_Reports_4.html)

| Note: Year 1 represents approximately 2021. |

The mineral deposits on the Entrée/Oyu Tolgoi JV Property will be developed, operated and processed by Rio Tinto on behalf of OTLLC, the manager of the Entrée/Oyu Tolgoi JV.

Note, the 2021 Reserve Case and the 2021 PEA are mutually exclusive; if the 2021 Reserve Case is developed and brought into production, the mineralization from Hugo North Extension Lift 2 is not sterilized or reduced in tonnage or grades. In addition, the Heruga deposit, which is not included in either the 2021 Reserve Case or the 2021 PEA, provides a great deal of future potential and with further exploration and development could become a completely standalone underground operation, independent of other Oyu Tolgoi project underground development, and provide considerable flexibility for mine planning and development.

Processing and Metallurgy

Various phases of metallurgical testing have been completed on samples of drill core from Hugo North Extension and Heruga. For Hugo North Extension this work has consisted of mineralogical characterization, grindability testing, and batch and locked cycle flotation testing. Locked cycle flotation testing has demonstrated that a conventional flotation flow sheet with moderate grinds, two stages of cleaning, and low reagent additions are able to generate a saleable copper concentrate, with levels of potential penalty elements identified that can be managed through blending or occasional penalty charges. Payable by-product levels of gold and silver are present in the copper concentrates.

Metallurgical predictions for the recovery of copper, gold and silver from Hugo North Extension Lift 1 are based on formulas developed by OTLLC for each element and for each of five defined metallurgical domains. The formulas for copper, gold and silver are based on mill head grades and by applying several other parameters. Average copper, gold and silver recoveries over the life of the 2021 Reserve Case and the 2021 PEA are shown in Table 2.

New equations for predicting copper grades in concentrate were also developed by OTTLC for Hugo North Extension Lift 1 and 2 mineralization types. Average copper, gold and silver grades in the copper concentrate for both Lift 1 and Lift 2 are summarized in Table 2.

In addition, copper, gold and silver recoveries and respective grades in the copper concentrate for Heruga mineralization, previously reported on January 15, 2018 is provided in Table 2.

Table 2. Summary of Entrée/Oyu Tolgoi JV Property Metallurgical Results

| Deposit | Copper Concentrate Grades | Recovery (%) | | | | | | | Cu (%) | Au (g/t) | Ag (g/t) | Cu | Au | Ag | | HNE 1 - Lift 1 (2021 Reserve Case) | 33.4 | 10.32 | 71.6 | 92.5 | 81.0 | 82.7 | | HNE 1 - Lift 2 (2021 PEA) | 34.1 | 10.39 | 77.3 | 92.3 | 77.6 | 77.8 | | Heruga – Resource | 25 | 24 | 87 | 86.2 | 78.6 | 81.9 |

| 1 HNE = Hugo North Extension. |

The process plant will be fed by a mix of mineralization from the Entrée/Oyu Togoi JV Property and from other Oyu Tolgoi project deposits and will consist of conventional SAG mill / ball mill / grinding circuit (SABC) followed by flotation. A fifth ball mill will be added to the current plant to achieve a finer primary grind P 80 of 150–160 µm for mineralization from Hugo North and Hugo North Extension. The additional ball mill, together with additional flotation, regrind, cleaning and concentrate handling capacity, will provide a maximum rated plant capacity of 42.6 Mt/a (124.8 kt/d) during the period when Hugo North Extension ores are to be processed. Copper concentrate will be bagged on site and trucked to a smelter in China .

2021 RESERVE CASE

2021 Reserve Case Mining Methods

Underground mining on the Entrée/Oyu Tolgoi JV Property is planned to be by large-scale panel caving, which is a variation of block caving. The size, geotechnical characteristics and depth of mineralization at the deposits on the Entrée/Oyu Tolgoi JV Property make block caving the best suited mining method, and although the method has large, early capital investment requirements, it is highly productive and has low operating costs.

The overall Hugo North and Hugo North Extension mine design in OTFS20 for Lift 1 consists of 211 km of lateral development, five shafts (for access for mining personnel and equipment, for production, and for intake and exhaust ventilation) and a decline tunnel from surface. None of this infrastructure occurs on the Entrée/Oyu Tolgoi JV Property, except for approximately 15.4 km of lateral underground development. The caved material will primarily be transported to surface along conveyors in the decline tunnel, however a portion may be hauled to surface through one of the shafts. The underground mine will operate at a nominal 95 ktpd, which will be a blend of mineralization from other Oyu Tolgoi project deposits with mineralization from the Entrée/Oyu Tolgoi JV Property at rates averaging approximately 6,404 tpd over the life of the 2021 Reserve Case (note this average feed production rate includes the years of low-tonnage development production for Lift 1).

2021 Reserve Case Capital and Operating Costs

Under the terms of the Entrée/Oyu Tolgoi JV, OTLLC is responsible for 80% of all costs incurred on the Entrée/Oyu Tolgoi JV Property for the benefit of the Entrée/Oyu Tolgoi JV, including capital expenditures, and Entrée is responsible for the remaining 20%. In accordance with the terms of the Entrée/Oyu Tolgoi JV, Entrée has elected to have OTLLC debt finance Entrée's share of costs for approved programs and budgets, with interest accruing at OTLLC's actual cost of capital or prime +2%, whichever is less, at the date of the advance. Debt repayment may be made in whole or in part from (and only from) 90% of monthly available cash flow arising from the sale of Entrée's share of products. Available cash flow means all net proceeds of sale of Entrée's share of products in a month less Entrée's share of costs of Entrée/Oyu Tolgoi JV activities for the month that are operating costs under Canadian generally-accepted accounting principles.