REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
OR | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For fiscal year ended December 31, 2015 | ||
OR | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period from ____ to ______ | ||
OR | ||
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
Date of event requiring this shell company report: |
Suite 1201 – 1166 Alberni Street |
Vancouver, British Columbia, Canada V6E 3Z3 |
Suite 1201 – 1166 Alberni Street |
Vancouver, British Columbia, Canada V6E 3Z3 |
Title of Each Class | Name of Exchange | ||
Common Shares, no par value | NYSE MKT LLC |
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ |
U.S. GAAP ☒ | International Financial Reporting Standards as issued ☐ | Other ☐ |
by the International Accounting Standards Board |
1 | ||||
CURRENCY | ||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1 | |||
CAUTIONARY NOTE TO UNITED STATES INVESTORS | 3 | |||
EXPLANATORY NOTE REGARDING PRESENTATION OF FINANCIAL INFORMATION | 3 | |||
Non-U.S. GAAP Performance Measurement | 3 | |||
Item 1. | Identity of Directors, Senior Management and | 11 | ||
Item 2. | Offer Statistics and Expected Timetable | 11 | ||
Item 3. | Key Information | 11 | ||
Item 4. | Information on the Company | 28 | ||
Item 4A. | Unresolved Staff Comments | |||
Item 5. | Operating and Financial Review and Prospects | |||
Item 6. | Directors, Senior Management and Employees | |||
Item 7. | Major Shareholders and Related Party Transactions | |||
Item 8. | Financial Information | |||
Item 9. | The Offer and Listing | |||
Item 10. | Additional Information | |||
Item 11. | Quantitative and Qualitative Disclosures about Market Risk | |||
Item 12. | Description of Securities Other than Equity Securities | |||
Part II. | ||||
Item 13. | Defaults, Dividend Arrearages and Delinquencies | |||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |||
Item 15. | Controls and Procedures | |||
Item 16. | ||||
Item 16A. | Audit Committee Financial Expert | |||
Item 16B. | Code of Ethics | |||
Item 16C. | Principal Accountant Fees and Services | |||
Item 16D. | Exemptions from the Listing Standards for Audit Committees | |||
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||
Item 16F. | Changes in Registrant's Certifying Accountant | |||
Item 16G. | Corporate Governance | |||
Item 16H. | Mine Safety Disclosure. |
Part III. | ||||
Item 17. | Financial Statements | |||
Item 18. | Financial Statements | |||
Item 19. | Exhibits | |||
SIGNATURES |
· | the |
· | the |
· | the |
· |
· | the |
delay in the |
· | delays, and the |
the |
· |
· |
· | whether the |
· | fluctuations in commodity prices and demand; |
· | changing foreign exchange rates; |
· | actions by Rio Tinto, Turquoise Hill and/or OTLLC and by government authorities including the |
· |
· |
· |
· |
· |
· | risks related to international operations, including legal and political risk in Mongolia; |
· | risks associated with changes in the attitudes of governments to foreign investment; |
· | risks associated with the conduct of joint ventures; |
· | discrepancies between actual and anticipated production, mineral reserves and resources and metallurgical recoveries; |
· | global financial conditions; |
· | changes in project parameters as plans continue to be refined; |
· | inability to upgrade Inferred mineral resources to Indicated or Measured mineral resources; |
· | inability to convert mineral resources to mineral reserves; |
· | conclusions of economic evaluations; |
· | failure of plant, equipment or processes to operate as anticipated; |
· | accidents, labour disputes and other risks of the mining industry; |
· | environmental risks; |
· | title disputes; |
· | the potential application of the Government of |
· | risks related to officers and directors becoming associated with other natural resource companies which may give rise to conflicts of interests; |
· | risks that the Company could be deemed a passive foreign investment company, |
· | risks related to differences in United States and Canadian reporting of reserves and resources; |
· | risks related to the potential inability of U.S. investors to enforce civil liabilities against the Company or its directors, controlling persons and officers; and |
· | risks related to the Company being a foreign private issuer under U.S securities laws. |
Glossary of Mining Terms | ||
alteration | A change in the minerals or chemistry of a rock as a result of chemical reactions with hydrothermal fluids. Alteration zones are areas of altered rock that commonly surround hydrothermal mineral deposits. | |
anomaly | A departure from the norm which may indicate the presence of mineralization in the underlying bedrock. Common anomalies encountered during mineral exploration are: IP, magnetic, and geochemical. | |
assay | The chemical analysis of an ore, mineral or concentrate of metal to determine the precise quantity of specific metals or elements. | |
block caving | A method of mining in which large blocks of ore are undercut by tunnels and caverns, causing the ore to break or cave under its own weight. | |
chip sample | A sample of rock collected by chipping rock fragments continuously along a width of rock exposure in order to collect an equal volume of rock along the length of the sample. | |
claim | An area of ground in which the mineral rights have been acquired; also called a tenement, exploration licence or exploration concession. | |
concentrate | Finely ground product of the milling process containing a high percentage of the valuable metal(s). This product is generally sent to smelters for further processing and refining. | |
CuEq | A copper equivalent is the grade of one commodity converted to the equivalent grade of copper using metal prices and adjusted for mill recovery rates. | |
cut-off grade | The lowest grade of mineral resources considered economic; used in the calculation of reserves and resources in a given deposit. | |
deposit | A mineral occurrence of sufficient size and grade that it might, under favorable circumstances, be considered to have economic potential. | |
diamond drilling | A method of rotary drilling in rock, usually for exploratory purposes, using hollow diamond-crowned bits to obtain core for examination. Provides material for assays and for geological observation. | |
drill core | A long, continuous cylindrical sample of rock brought to surface by diamond drilling. | |
fault | A fracture in rock along which the adjacent rock units are relatively displaced. | |
Feasibility Study (FS) | A comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of realistically assumed mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations together with any other relevant operational factors and detailed financial analysis, that are necessary to demonstrate at the time of reporting that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a |
flotation | A milling process by which some mineral particles are induced to become attached to bubbles of froth and to float, and others to sink, so that the valuable minerals are concentrated and separated from those minerals without value. |
The relative quantity or the percentage of ore-mineral or metal content in an ore body. | ||
gravity | A method of ground geophysical surveying that measures the gravitational field at a series of different locations. This data determines the different densities of the underlying rock and can show anomalous density or mass deficits that can be used to define targets of interest. | |
heap leach | A process used for the recovery of oxidized copper or gold from weathered low-grade ore. Crushed mineralized material is "heaped" on impervious pads and leached by the percolation of a leach liquid trickling through the beds and dissolving the metal. The metals are recovered from the solution by conventional methods (see "solvent extraction/electrowinning"). | |
Indicated mineral resource | That part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. | |
induced polarization (IP) | A method of ground geophysical surveying employing an electrical current to determine indications of mineralization. | |
Inferred mineral resource | That part of a mineral resource for which quantity, grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. | |
intrusive/intrusion | Rock which while molten, penetrated into or between other rocks but solidified before reaching the surface. | |
Measured mineral resource | That part of a mineral resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. | |
metallurgy | The science that deals with procedures used in extracting metals from their ores, purifying and alloying metals, and creating useful objects from metals. |
mineral reserve | A mineral reserve is the economically mineable part of a Measured or Indicated mineral resource demonstrated by at least a Mineral reserves are sub-divided in order of increasing confidence into Probable mineral reserves and Proven mineral reserves. A Probable mineral reserve has a lower level of confidence than a Proven mineral reserve. |
A concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Mineral resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An Inferred mineral resource has a lower level of confidence than that applied to an Indicated mineral resource. An Indicated mineral resource has a higher level of confidence than an Inferred mineral resource but has a lower level of confidence than a Measured mineral resource. | ||
net present value (NPV) | The present value of the total revenue stream for the proposed mine taking into account a discount rate for future revenue and costs, and current capital costs. | |
net smelter returns (NSR) | The gross proceeds that the owner of a mining property receives from the sale of products less deductions of certain limited costs including smelting, refining, transportation and insurance costs. | |
NI 43-101 | National Instrument 43-101 – Standards of Disclosure for Mineral Projects of the CSA establishes the standards for disclosure of scientific and technical information regarding mineral projects that is intended to be, or reasonably likely to be, made available to the Canadian public. | |
NSR royalty | The percentage of net smelter returns that the mine is obligated to pay to the royalty holder. | |
open pit mining | A form of mining designed to extract minerals that lie near the surface. Waste, or overburden is first removed and the mineral-bearing rock is broken, removed and processed to remove the valuable metal. (Similar terms: opencast mining, open cut mining). | |
ore | The naturally occurring material from which a mineral or minerals of economic value can be extracted at a reasonable profit. Also, the mineral(s) thus extracted. | |
oxidation | A chemical reaction caused by exposure to oxygen which results in a change in the chemical composition of a mineral. | |
oxidized or oxide minerals | Oxide- and carbonate-based minerals formed by the weathering of sulphide minerals. Examples include: malachite, turquoise and chrysocolla. |
porphyry | An igneous rock of any composition that contains conspicuous, large mineral crystals in a fine-grained groundmass; a porphyritic igneous rock. | |
porphyry copper deposit | A large mineral deposit, typically within porphyry rocks, that contains disseminated copper sulphide and other minerals. Such deposits are mined in bulk on a large scale, generally in open pits, for copper and possibly by-product molybdenum, gold and silver. | |
Pre-Feasibility study | A comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations and the evaluation of any other relevant factors which are sufficient for a QP, acting reasonably, to determine if all or part of the mineral resource may be classified as a mineral reserve. |
A study, other than a | ||
Probable mineral reserve | The economically mineable part of an Indicated and, in some circumstances, a Measured mineral resource demonstrated by at least a | |
Proven mineral reserve | ||
The economically mineable part of a Measured mineral resource demonstrated by at least a | ||
Qualified Person (QP) | An individual defined under NI 43-101 who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; has experience relevant to the subject matter of the mineral project and the technical report; and is a member or licensee in good standing of a professional association. | |
quality assurance/quality control (QA/QC) | Quality assurance is information collected to demonstrate and quantify the reliability of assay data. Quality control consists of procedures used to maintain a desired level of quality in an assay database. | |
reverse circulation (RC) drilling | A type of percussion drilling where a hammer force is transmitted down a length of steel drill rods to a rotating bit that breaks the rock into chips. The method involves forcing air and/or water down the outer chamber of twin-walled drill rods to the drill bit where the rock chips are picked up and driven back to the surface through the inner chamber of the rods. RC drilling is faster and less expensive than diamond drilling. However, RC drilling only produces fragments and chips of broken rock, so less geological information is available than would be obtained from drill core. | |
smelter | Any metallurgical operation in which metal is separated by fusion from those impurities with which it may be chemically combined or physically mixed, such as in ores. |
solvent extraction/electrowinning (SX/EW) | A process to recover metallic copper from acidic heap leach solutions (see "heap leach") by selectively collecting the copper with an organic solvent. Copper is then removed from the organic solution into an electrolytic solution and then metallic (anode) copper produced by applying an electric current across the solution. The heap leach and SX/EW process is generally lower cost than conventional treatment of sulphide ores and can treat lower grades. | |
strip ratio | The ratio of waste rock that must be removed for every tonne of ore that is mined in an open pit. | |
stripping | The removal of earth or non-ore rock materials as required to gain access to the desired ore or mineral materials; the process of removing overburden or waste material in a surface mining operation. | |
sulphide mineralization | Compounds of sulphur with other metallic elements. Common copper examples are chalcopyrite and bornite. | |
tailings | The fine, sandy material without valuable metals remaining after the treatment of ground ore resulting in the removal of the valuable metals and production of concentrate (see "concentrate"). |
In geological exploration, a narrow, shallow ditch cut across a mineral showing or deposit to obtain samples or to observe rock character. | ||
underground mining | Extraction of ores, rocks and minerals from below the surface of the ground. Generally access to the underground mine workings is through an adit (sub-horizontal entrance in the side of a hill), down a sub-vertical mine shaft or through some other tunnel configuration. Generally higher cost than open pit mining. | |
vug | ||
A small cavity in a rock, usually lined with crystals of a different mineral composition than the enclosing rock. |
Units of Measure | ||
billion | B | |
billion tonnes | Bt | |
cubic metre | m3 | |
degree | ° | |
degrees Celsius | °C | |
dollar (U.S.) | $ | |
dry metric tons | dmt | |
gram | g | |
grams per tonne | g/t | |
greater than | > | |
hectare (10,000 m2) | ha | |
kilo troy ounces | koz | |
kilogram | kg | |
kilometre | km | |
kilometres per hour | km/hr | |
kilovolt | ||
kV | ||
kilowatt hour | kWh | |
kilowatt hours per tonne (metric) | kWh/t | |
less than | < | |
litre | L | |
litres per second | L/s | |
litres per tonne | L/t | |
megawatts | MW | |
metre | m | |
metres above sea level | masl |
metres per second | ||
m/s | ||
microns | µm |
mm | ||
million | M | |
million pounds | Mlb | |
million ounces | Moz | |
million tonnes | Mt | |
minute (geographic coordinate) | ' | |
ounce | oz | |
parts per million | ppm | |
per | / | |
per annum (year) | ||
/a | ||
per day | ||
/d | ||
percent | % | |
pound(s) | lb | |
second (geographic coordinate) | " | |
square centimetre | cm2 | |
square kilometre | km2 | |
square metre | m2 | |
three dimensional | 3D | |
tonne (1,000 kg) | t | |
tonnes per cubic metre | t/m3 | |
tonnes per day | tpd | |
tonnes per year | t/a |
A. | Selected Financial Data |
2014 | 2013 | 2012 | 2011 | 2010 | |
Exploration | $9,018,994 | $5,808,316 | $7,966,902 | $17,532,831 | $11,800,772 |
General and administrative | 3,936,413 | 5,510,641 | 4,295,800 | 4,921,284 | 5,374,339 |
Consultancy and advisory fees | 830,623 | 1,941,130 | - | - | - |
Impairment of mineral property interests | 552,095 | 437,732 | 486,746 | 531,005 | - |
Interest expense | 264,869 | 260,453 | 229,359 | 151,952 | 44,103 |
Stock-based compensation | 251,390 | 1,422,297 | 1,207,878 | 991,161 | 2,897,845 |
Loss from equity investee | 107,907 | 146,051 | 1,012,156 | 2,397,085 | 985,441 |
Depreciation | 65,517 | 102,941 | 150,654 | 196,221 | 203,086 |
Fair value adjustment of asset backed commercial papers | - | (147,564) | - | - | - |
Gain on sale of investments | - | - | - | (3,326,275) | - |
Gain on sale of mineral property interest | (28,096) | (451,892) | (104,914) | (1,574,523) | - |
Current income tax expense (recovery) | (123,255) | 319,112 | - | 152,190 | - |
Interest income | (295,023) | (431,596) | (190,449) | (342,343) | (287,536) |
Foreign exchange loss (gain) | (1,978,854) | (1,113,728) | (187,773) | 491,504 | (403,230) |
Deferred income tax (recovery) expense | (3,933,392) | (2,381,868) | 329,770 | (4,981,884) | (545,412) |
Net loss for the year | 8,669,188 | 11,422,025 | 15,196,129 | 17,140,208 | 20,069,408 |
Net loss per share, basic and diluted | (0.06) | (0.08) | (0.12) | (0.15) | (0.19) |
Total assets | 79,690,498 | 97,395,105 | 64,173,530 | 74,589,810 | 81,359,098 |
Total long term liabilities | 44,269,904 | 50,956,860 | 15,286,041 | 13,720,492 | 16,158,190 |
Working capital(1) | 32,603,711 | 46,394,496 | 4,699,256 | 19,004,136 | 21,268,201 |
Weighted average number of common shares outstanding | 146,883,700 | 143,847,888 | 128,650,791 | 115,978,815 | 105,814,724 |
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Exploration | $ | 5,139,076 | $ | 9,018,994 | $ | 5,808,316 | $ | 7,966,902 | $ | 17,532,831 | ||||||||||
General and administrative | 4,555,363 | 3,936,413 | 5,510,641 | 4,295,800 | 4,921,284 | |||||||||||||||
Interest expense (income) | 412,077 | (30,154 | ) | (171,143 | ) | 38,910 | (290,391 | ) | ||||||||||||
Stock-based compensation | 197,375 | 251,390 | 1,422,297 | 1,207,878 | 991,161 | |||||||||||||||
Deferred income tax (recovery) expense | 160,173 | (3,933,392 | ) | (2,381,868 | ) | 329,770 | (4,981,884 | ) | ||||||||||||
Consultancy and advisory fees | 125,000 | 830,623 | 1,941,130 | - | - | |||||||||||||||
Loss from equity investee | 118,712 | 107,907 | 146,051 | 1,012,156 | 2,397,085 | |||||||||||||||
Depreciation | 42,528 | 65,517 | 102,941 | 150,654 | 196,221 | |||||||||||||||
Current income tax expense (recovery) | 218 | (123,255 | ) | 319,112 | - | 152,190 | ||||||||||||||
Fair value adjustment of asset backed commercial papers | - | - | (147,564 | ) | - | - | ||||||||||||||
Gain on sale of investments | - | - | - | - | (3,326,275 | ) | ||||||||||||||
Impairment of mineral property interests | - | 552,095 | 437,732 | 486,746 | 531,005 | |||||||||||||||
Gain on sale of mineral property interest | - | (28,096 | ) | (451,892 | ) | (104,914 | ) | (1,574,523 | ) | |||||||||||
Foreign exchange loss (gain) | (2,919,459 | ) | (1,978,854 | ) | (1,113,728 | ) | (187,773 | ) | 491,504 | |||||||||||
Net loss for the year | 7,831,063 | 8,669,188 | 11,422,025 | 15,196,129 | 17,140,208 | |||||||||||||||
Net loss per share, basic and diluted | (0.05 | ) | (0.06 | ) | (0.08 | ) | (0.12 | ) | (0.15 | ) | ||||||||||
Total assets | 61,662,485 | 79,690,498 | 97,395,105 | 64,173,530 | 74,589,810 | |||||||||||||||
Total long term liabilities | 39,315,880 | 44,269,904 | 50,956,860 | 15,286,041 | 13,720,492 | |||||||||||||||
Working capital(1) | 21,844,252 | 32,603,711 | 46,394,496 | 4,699,256 | 19,004,136 | |||||||||||||||
Weighted average number of common shares outstanding | 147,036,578 | 146,883,700 | 143,847,888 | 128,650,791 | 115,978,815 |
(1) | Working capital is defined as Current Assets less Current Liabilities. |
2015 | 2014 | 2013 | 2012 | 2011 | |
High for period | 1.3990 | 1.1643 | 1.0697 | 1.0418 | 1.0604 |
Low for period | 1.1728 | 1.0614 | 0.9839 | 0.9710 | 0.9449 |
End of period | 1.3840 | 1.1601 | 1.0636 | 0.9949 | 1.0170 |
Average for period | 1.2787 | 1.1045 | 1.0299 | 0.9996 | 0.9891 |
2014 | 2013 | 2012 | 2011 | 2010 | |
High for period | 1.1643 | 1.0697 | 1.0418 | 1.0604 | 1.0778 |
Low for period | 1.0614 | 0.9839 | 0.9710 | 0.9449 | 0.9946 |
End of period | 1.1601 | 1.0636 | 0.9949 | 1.0170 | 0.9946 |
Average for period | 1.1045 | 1.0299 | 0.9996 | 0.9891 | 1.0299 |
September | October | November | December | January | February | September | October | November | December | January | February | |
2014 | 2014 | 2014 | 2014 | 2015 | 2015 | 2015 | 2015 | 2015 | 2015 | 2016 | 2016 | |
High | 1.1208 | 1.1289 | 1.1427 | 1.1643 | 1.2717 | 1.2635 | 1.3413 | 1.3242 | 1.3360 | 1.3990 | 1.4589 | 1.4040 |
Low | 1.0863 | 1.1136 | 1.1236 | 1.1344 | 1.1728 | 1.2403 | 1.3147 | 1.2904 | 1.3095 | 1.3360 | 1.3969 | 1.3523 |
B. | Capitalization and Indebtedness |
C. | Reasons for the Offer and Use of Proceeds |
D. | Risk Factors |
A. | History and Development of the Company |
January | Through a combination of staking and purchase agreements, Entrée acquires additional key ground within and contiguous to the boundaries of the Ann Mason Project. |
January | |
First ore from the first phase of the Oyu Tolgoi project | |
February 2013 | Entrée enters into a comprehensive financing package with Sandstorm Gold Ltd. for gross proceeds of approximately $55 million. |
Entrée receives notice from the Mineral Resources Authority of Mongolia that the Ministry of Mining has cancelled the July 10, 2009 Order of the Ministry of Mineral Resources and Energy registering the Hugo Dummett (including the Hugo North Extension) and Heruga reserves. The notice further advises that any transfer, sale or lease of the Shivee Tolgoi and Javhlant mining licences is temporarily restricted. Entrée initiates discussions with representatives of the Mongolian Government, including the Ministry of Mining, as well as other Oyu Tolgoi stakeholders, in order to resolve the temporary restriction on the transfer of the mining licences. | |
March 2013 | The Company closes its private placement of 17,857,142 |
The Company announces that it has filed an updated technical report on the | |
April 2013 | Entrée initiates a combined RC and core drilling program at its Ann Mason Project in Nevada, to test for extensions of mineralization, and to potentially extend the mineralization within the current Ann Mason pit design and reduce the waste-to-mineralization strip ratio. |
Turquoise Hill | |
June 2013 | The Rt. Honourable Lord Howard of Lympne succeeds James Harris as non-executive Chairman of the |
Entrée begins baseline environmental studies at Ann Mason, including wildlife, biology, archaeology and cultural surveys, which will be used to expand the area covered under the existing Plan of Operations. | |
July 2013 | The first shipment of copper concentrate leaves the Oyu Tolgoi open pit copper and gold mine in Mongolia for customers in China. |
After receiving notification from the Government of Mongolia that project financing for Oyu Tolgoi will now require approval by the Mongolian Parliament, Turquoise Hill |
Development of the Oyu Tolgoi underground is suspended pending the resolution of outstanding |
September 2013 | The Company announces the results for its combined core and RC drilling program on the Ann Mason Project in Nevada. |
The Oyu Tolgoi open pit mine achieves official Commencement of Production, as defined in the 2009 Oyu Tolgoi Investment Agreement. | |
October 2013 | The Company announces that it has been advised that the temporary transfer restriction on the Shivee Tolgoi and Javhlant mining licences in Mongolia will be lifted and that the reserves for the joint venture deposits as approved through the July 10, 2009 Order of the Ministry of Mineral Resources and Energy will stand as originally presented. |
July 2014 | Entrée commences |
September 2014 | Turquoise Hill |
The lender commitments for project financing for the Oyu Tolgoi underground mine expire. | |
November 2014 | The Company reports on changes and impacts specific to the Entré |
January 2015 | The Company reports the assay results from the first 20 holes of its 40-hole Pre-Feasibility infill drill program at the Ann Mason Project in Nevada. |
March 2015 | The Company reports the assay results from the final 20 holes of its 40-hole Pre-Feasibility infill drill program at the Ann Mason Project in Nevada. |
Turquoise Hill announces that OTLLC has filed a statutory 2015 Oyu Tolgoi Feasibility Study with the Mongolian Minerals Council. The 2015 Oyu Tolgoi Feasibility Study is based on, and is consistent with, the 2014 Oyu Tolgoi Feasibility Study. The 2015 Oyu Tolgoi Feasibility Study contains two production cases – a Reserve case and a Life of Mine case. | |
May 2015 | Turquoise Hill, OTLLC, Rio Tinto and the Government of Mongolia execute the Mine Plan, which resolves a number of issues between the parties and provides a pathway forward to the eventual restart of Phase 2 underground development, including Lift 1 of the Entrée-OTLLC joint venture's Hugo North Extension deposit. |
July 2015 | Anna Stylianides is appointed to the Board. |
August 2015 | Turquoise Hill announces that OTLLC has filed revised schedules for the 2015 Oyu Tolgoi Feasibility Study with the Mongolian Minerals Council, which aligns it with the Mine Plan. |
September 2015 | The Company announces the results of the 2015 PEA for its 100%-owned Ann Mason copper-molybdenum porphyry deposit in Nevada. The 2015 PEA incorporates the results of Entrée's infill drill program and a new resource estimate. Approximately 95% of the mineralization constrained within the ultimate Phase 5 pit is now classified as either Measured or Indicated resources with the remaining 5% as Inferred resources. The 2015 PEA also includes preliminary results of a detailed metallurgical program, designed to better characterize the metallurgical processes and recoveries in the 2015 PEA and to support a future Pre-Feasibility study. |
Turquoise Hill announces that the Government of Mongolia has signed the Multilateral Investment Guarantee Agency ("MIGA") for host country approval with respect to guarantees to be issued by MIGA in connection with the Oyu Tolgoi project financing and that the signing is a significant milestone in the project financing timeline. | |
October 2015 | The Company files a NI 43-101 technical report entitled "Updated Preliminary Economic Assessment on the Ann Mason Project, Nevada, U.S.A.", with an effective date of September 9, 2015. |
The Oyu Tolgoi project financing information circular is provided to the banking syndicate allowing for each institution's respective internal consideration and approval. | |
November 2015 | Stephen Scott replaces Gregory Crowe as Chief Executive Officer of the Company. |
December 2015 | OTLLC signs a $4.4 billion finance facility (with provision for up to $6 billion) for underground mine development at the Oyu Tolgoi project, including Lift 1 of the Entrée-OTLLC joint venture's Hugo North Extension deposit. The 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. |
B. | Business Overview |
· | An update to the capital estimate will be completed in parallel with other pre-start activities, ahead of final approval of the Oyu Tolgoi project by the Turquoise Hill, Rio Tinto and OTLLC boards. |
· | The preferred engineering, procurement and construction management ("EPCM") contractor has been engaged to complete some critical path detailed engineering and the re-estimate. |
· | Funding for pre-start activities has been approved, including ramp up of the owners and EPCM team, re-estimate activities, detailed engineering and early procurement for plant, equipment and materials that are required for project restart as well as necessary critical works that are key enablers for recommencement of lateral development mining activity. |
· | The funding covers work scheduled to take place before the official 'notice to proceed' is approved, which is expected in early 2016. |
· | The intent of pre-start funding is 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. Lateral mining development is targeted to restart in mid-2016. |
· |
· |
C. | Organizational Structure |
D. | Property, Plants and Equipment |
· | Base case, pre-tax |
· | Base Case post-tax NPV7.5 of |
· | Development capital costs of approximately |
· | Pre-production development of three years. |
· | Mine production for 21 years, followed by four years of reclamation (Life of Mine or "LOM"). |
· | Average LOM cash costs |
· | Average LOM AISC (net of by-product sales) pre-tax of $1.57/lb copper (see Non-U.S. GAAP Performance Measurement above). |
· | Net |
· | LOM payable production of |
o | 5.1 billion pounds of copper, |
o | 46 million pounds of |
o | 0.4 million ounces of gold, and |
o | 8.8 million ounces of silver. |
· |
o | 241 million pounds of copper, |
o | 2.2 million pounds of molybdenum, |
o | 20,000 ounces of gold, and |
o | 421,000 ounces of silver. |
· | Strip ratio of |
· | LOM average copper recovery of |
· | Copper concentrate grading 30% |
Date | Target | Company | No. Drill Holes (core or RC) | Metres (m) |
1967 – 1980 | Ann Mason | Anaconda | 103 | 40,577 |
1990 | Ann Mason | Arimetco | 1 | 171 |
2002 | Ann Mason | MIM | 5 | 914 |
2006 - 2008 | Ann Mason | PacMag | 12 | 6,973 |
Subtotal (Ann Mason) | 121 | 48,635 | ||
1968 - 1970 | Blue Hill | Anaconda | 13 | 2,943 |
1995 | Blue Hill | Phelps Dodge | 4 | 610 |
2007 - 2008 | Blue Hill | PacMag | 9 | 3,438 |
Subtotal (Blue Hill) | 26 | 6,991 | ||
2008 | Minnesota | PacMag | 3 | 560 |
TOTAL | All Companies | 150 | 56,186 |
Company | Date | Exploration Target/Area | Exploration Work |
The Anaconda Company (after 1977 Atlantic Richfield) | 1956–1981 | Ann Mason | Geophysics, Drilling, Resource |
Blue Hill | Geophysics, Reconnaissance Mapping, Drilling | ||
Superior Oil | 1968 | Blue Hill | Geophysics |
Iso Nevada Limited | 1970-1971 | Shamrock | Drilling |
Arizona Metals Company (Arimetco) | 1990 | Ann Mason | Drilling |
Phelps Dodge Corporation | ~1995 | Blue Hill | Drilling |
Mount Isa Mines | 2002–2003 | Ann Mason | Mapping, Geophysics, Drilling |
Giralia Resources NL | 2003 | Ann Mason | No Exploration Work |
Lincoln Gold Corporation | 2004–2005 | Area approx. 2 km northwest of Blue Hill | Soil Geochemistry, Drilling |
Pacific Magnesium Corporation Ltd. (PacMag Metals Limited) | 2005–2010 | Ann Mason | Drilling, Resource, Scoping Study |
Ann South | Geophysics | ||
Blue Hill | Drilling | ||
Buckskin | Geophysics | ||
Minnesota | Geophysics, Drilling | ||
Shamrock | Drilling | ||
Honey Badger Exploration Inc. (formerly Telkwa Gold Corporation) | 2007–2009 | Broad area west of Ann Mason and Blue Hill, incl. Roulette | Airborne Geophysics, Rock and Soil Geochemistry |
Bronco Creek Exploration Inc. (Eurasian Minerals Inc.)* | 2007–2012* | Roulette | No Historical Exploration Work |
Note: | *Entrée has an option to acquire an 80% interest in 216 unpatented lode claims formerly known as the Roulette property through an option agreement with Bronco Creek, a subsidiary of Eurasian Minerals Inc. |
mineral resource. The relatively flat Singatse Fault truncates the upper surface of the 0.15% copper envelope over a portion of |
· | EG-AM-14-041, located near the centre of the deposit, with 390 metres of 0.35% |
· | EG-AM-14-043, located near the centre of the deposit, with 409 metres of 0.35% |
· | EG-AM-14-046, the eastern-most drill hole, with 112.3 metres of 0.34% |
· | EG-AM-14-050, with 176 metres of 0.35% |
· | EG-AM-14-057, with 327.4 metres of 0.38% copper, including 0.42% copper and 0.12 g/t gold over 200 |
· | EG-AM-14-059, with 466 metres of 0.31% |
· | EG-AM-14-065 with 150 metres of 0.38% |
· | EG-AM-14-067, with 377 metres of 0.32% |
· | EG-AM-14-073, on the northeast rim of the deposit, with 102 metres of 0.36% |
· | EG-AM-14-076, immediately northwest of 043, with 190 metres of 0.34% copper and a separate interval of 180 metres of 0.38% copper. |
Year | Exploration | Description |
2015 | Drilling | ·4 holes totalling 2,061 m (EG-AM-15-079 to -082) and 1 RC precollar at Ann Mason (EG-AM-15-083) ·1 hole at Blue Hill (EG-BH-15-041, 558 m) |
Mapping | ·Geological mapping at Blue Hill | |
Petrography | ·21 thin sections | |
2014 | Drilling | ·40 holes totalling 19,738 m (EG-AM-14-040 to -078; 12-031 deepened) at Ann Mason |
Mapping | ·Geological mapping over Blackjack IP and west of Blue Hill | |
Petrography | ·114 thin sections | |
2013 | Drilling1 | ·7 holes totalling 3,333 m at Ann Mason (EG-AM-13-033 to -39) ·9 holes totalling 1,088 m (EG-BH-13-032 to -040) and 2 holes deepened (-10-003 and -11-027; 332 m) at Blue Hill |
Geophysics | ·IP/Resistivity Survey | |
Mapping | ·Geological mapping Blackjack IP | |
2012 | Drilling1 | ·5 holes totalling 5,355 m (EG-AM-12-026 to -030) and 2 RC precollars (-31 and -32, 264 m) at Ann Mason ·1 hole totalling 171 m (EG-R-10-005A) and 1 hole deepened 277.68 (-005) at Roulette ·1 hole deepened 723 m at Blue Hill (EG-BH-11-031) |
Geochemistry | ·Rock and soil sampling program at Ann Mason/Blue Hill, and Blackjack Oxide ·Re-assaying of 13,750 m of Anaconda core from 44 holes (6,142 samples) | |
Topography | ·Digital Elevation Model and 1 m contour interval map covering the Project | |
Mapping | ·Blackjack Oxide Target Mineralization | |
Petrography | ·29 polished thin sections from Ann Mason core samples | |
2011 | Drilling | ·22 holes totalling 23,943 m at Ann Mason (EG-AM-11-004 to -025) ·17 holes totalling 4,490 m at Blue Hill (EG-BH-11-015 to -031) |
Compilation | ·Geological compilation of Anaconda data for Ann Mason and Blue Hill | |
Geophysics | ·NSAMT Survey over Ann Mason: 9 lines covering 15.4 km | |
2010 | Drilling | ·3 holes totalling 3,585 m at Ann Mason deposit (EG-AM-10-001 to -003) ·19 holes totalling 4,314 m at Blue Hill (EG-B-10-003 to -007; EG-BH-10-001 to -014) ·6 holes totalling 1,860 m at Roulette EG-R-10-001 to -004, -004A, and -005) ·2 holes totalling 871 m at Blackjack IP Northeast (EG-B-10-001 and -002) |
Geophysics | ·CRIP survey over Blackjack and Blackjack Northeast: 9 lines covering 43.5 km ·NSAMT survey over Roulette: 1 line covering 3 km ·IP Survey over Ann Mason and Blue Hill: 10 lines covering 52.2 km | |
Compilation | ·Soil geochemistry compilation (PacMag and Telkwa Gold Data), Blue Hill area ·IP/Resistivity and Magnetics compilation (Anaconda, Honey Badger), Project area | |
2009 | Geochemistry | ·Soil Geochemistry and soil pH Survey over Roulette |
Note: | 1Drill holes overlapping two calendar years are listed within the year started, along with their total lengths |
Exploration Area | No. of Holes | Length (m) | Hole Type | |||
Ann Mason | deposit | 77 | 56,163 | 76 diamond, including 63 with RC pre-collar; 1 RC hole | ||
periphery | 5 | 2,117 | 3 diamond with RC pre-collar; 2 RC | |||
Blue Hill | deposit | 34 | 7,701 | 8 diamond, including 3 with RC pre-collar; 26 RC | ||
periphery | 12 | 3,804 | 7 diamond; 5 RC | |||
Blackjack IP (Northeast) | 2 | 871 | 1 diamond with RC pre-collar; 1 RC pre-collar, | |||
Roulette | 7 | 2,308 | 3 diamond with RC pre-collar; 2 diamond daughter holes; 2 RC pre-collar | |||
Total | 137 | 72,963 |
· | Entrée personnel transport the core from the rig in secure covered boxes to Yerington core logging/sampling facility. |
· | Core is washed and photographed. |
· | Geotechnical information includes core recovery, RQD and magnetic susceptibility. |
· | Core logging includes lithology, alteration, mineralization, structure, and veining. |
· | Sample is in 2 metre intervals unless conforming to contacts of major rock or alteration types. |
· | All geotechnical, logging, and sampling data is entered into the Fusion (Datamine) database. |
· | Core is sampled by sawing competent pieces of core in half, or collecting half of the rock in areas of highly broken core; then bagged and sealed. Once logged and split, the core is stored on racks or stacked on pallets in a secure storage facility. |
· | Assay samples are kept in a secure facility prior to being picked up by the laboratory. |
· | Sample shipments are picked up by laboratory personnel. Strict chain of custody procedures are maintained during the transporting of the samples to the labs. Any indication of tampering or discrepancies between samples received and samples shipped would be reported to Entrée by the lab. |
· | Pulps and coarse rejects are returned to Entrée's Yerington facility, where they are catalogued and stored on site. |
· | RC samples are collected at the drill; all RC drilling is conducted with air and/or water as the drilling medium. |
· | Assay samples consist of an approximate quarter-split of all cuttings and water returned from each 5 foot interval, and are collected in an 18" x 24" MicroPor cloth sample bag, resulting in 6 to 10 kilogram samples when dry. |
· | Assay duplicates are collected at the drill by using approximate 1/8 splits for both the assay sample and duplicate. |
· | Samples are allowed to drain at the drill site, and are transported to Entrée's secure core and sample facility by Entrée employees each day. Samples are then allowed to air dry in a fenced and locked facility prior to being submitted to the laboratory for analysis. |
Year | Sample Preparation Facility | Sample Preparation Procedure | Primary Sample Assaying Lab | Sample Assaying Procedures/Elements | Geological QA/QC |
Prior 2005 (Various Operators) | Unknown | Unknown | Unknown | Unknown | Unknown |
2005–2006 (Operator - PacMag) | ALS Chemex Reno, Nevada | Unknown | ALS-Chemex Vancouver, BC Except Au in Reno, Nevada | · 61 element ICP-AES and MS after 4-acid digestion (MEICP61a) · Samples Mo >300 ppm have additional Re and 47 elements ICP analysis (ME-MS61) · Au by fire assay with AAS finish (30 g sample weight) (Av-AA23) | · SRMs (1/50) · External Assay Checks (up to 5%) |
2007–2008 (Operator - PacMag) | American Assay Laboratories (AAL) Reno, Nevada | · >70% passing -2 mm · Riffle splitting · 1,000 g split pulverized to >85% passing 75 µm | American Assay Laboratories (AAL) Reno, Nevada | · 61 element ICP-AES and MS after 4-acid digestion (ICP-4a) · Cu >1% additional ore-grade Cu analysis · Au by fire assay with AAS finish (30 g sample wt) (FA-30) | · SRMs (1/50) · Check assays - 100 pulp samples · External assay checks (up to 5%) |
2010–Mid 2011 (Operator - Entrée) | ALS Chemex Reno, Nevada | · >70% passing -2 mm · Riffle splitting · 250 g split pulverized to >85% passing 75 µm | ALS-Chemex Vancouver, BC Except Au in Reno, Nevada | · 51 element ICP-AES and ICP-MS after 4-acid digestion (ME-MS51) · Ore Grade Cu and Mo: ICP-AAS after 4-acid digestion (OG-62) · Au by fire assay with FA-AAS finish (30 g sample t) (Au-AA21) · BH oxide and mixed zones if >0.1% TCu (Cu-AA05)-additional leached Cu analysis | · Core sampling: SRM 1/30; Blanks 1/30; field duplicates 1/30 · RC sampling: SRM 1/40; Blanks 1/20; field duplicates 1/20 · External assay checks 307 core samples and 114 RC samples |
Mid 2011–2012 (Operator - Entrée) | Skyline Assayers and Laboratories Battle Mountain, Nevada | · 75% passing -10 mesh · Riffle splitting · 250-300 g split pulverized to >95% passing ‑150 mesh | Skyline Assayers and Laboratories Tuscon, Arizona | · 49 element ICP-MS after aqua regia digestion(TE-3); process changed to 4-acid digestion & 24 element ICP-OES (TE-4) · Ore Grade Cu and Mo: 4-acid digestion using conventional ICP-OES (CuMo-MEA) · Au by fire assay with FA-AAS finish (30 g sample wt) (FA-1) · Ag by FA from March 2012 (FA-08) | · Core sampling: SRM 1/30; Blanks 1/30; field duplicates 1/30 · RC sampling: SRM 1/40; Blanks 1/20; field duplicates 1/20 · External assay checks 731 samples |
July-August 2013 (Operator - Entrée) | Acme Elko, Nevada | · Crush · Riffle splitting · 250 g split pulverized to >80% passing ‑200 mesh | ACME Vancouver, BC | · 45 element ICP- MS after 4-acid digestion (1EX) · Au by fire assay fusion by ICP-ES (30 g sample wt) (FA-330-Au) · Oxide Cu samples - additional G801 using 5% H2SO4 leech | · SRM 1/30; Blanks 1/30; field duplicates 1/30 · No external checks |
2014–2015 (Operator - Entrée) | Acme Elko or Reno, Nevada | · Crush · Riffle splitting · 250 g split pulverized to >80% passing ‑200 mesh | ACME Vancouver, BC | · 45 element ICP- MS after 4-acid digestion (MA-200) · Au by fire assay fusion by ICP-ES (30 g sample wt) (FA-330-Au) | · SRM 1/30; Blanks 1/30; core twin, coarse reject, and pulp duplicates 1/30 · External assay checks 319 samples |
· | Reviewed drilling, logging, sampling, analysis, and data storage procedures. |
· | Reviewed geological interpretations on cross sections and plan maps. |
· | Quick-logged several drill holes and compared with archived drill logs. |
· | Resurveyed several drill collar northings and eastings with a hand-held GPS and compared with database records. |
· | Inspected outcrops and compared with surface geology maps. |
· | Reviewed down hole survey records for unrealistic kinks. |
· | Reproduced statistics assessing sample assay accuracy and precision for several drill campaigns. |
· | overview of the geology and exploration history of the project. |
· | current exploration program on the project. |
· | infill drill program for resource category conversion. |
· | visits to drill site and drill hole collars check survey. |
· | drill rig procedures, including core handling discussion. |
· | surveying (topography, collar, and downhole deviations). |
· | sample collection protocols at the core logging facility. |
· | sample transportation and sample chain of custody and security. |
· | core recovery. |
· | QA/QC program (insertion of standards, blanks, duplicates, etc.). |
· | monitoring of the QA/QC program. |
· | review of diamond drill core, core logging sheets, and core logging procedures (including commentary on typical lithologies, alteration and mineralization styles, and contact relationships at the various lithological boundaries). |
· | specific gravity sample collection and determination. |
· | geological and geotechnical database structure, and all procedures associated with populating the final assay database with information returned from the laboratory. |
Classification | Tonnage (Mt) | Grade | Contained Metal | ||||||
Cu (%) | Mo (%) | Au (g/t) | Ag (g/t) | Cu (Mlb) | Mo (Mlb) | Au (Moz) | Ag (Moz) | ||
Measured | 412 | 0.33 | 0.006 | 0.03 | 0.64 | 3,037.6 | 58.1 | 0.37 | 8.46 |
Indicated | 988 | 0.31 | 0.006 | 0.03 | 0.66 | 6,853.3 | 128.5 | 0.97 | 21.00 |
Measured and Indicated | 1,400 | 0.32 | 0.006 | 0.03 | 0.65 | 9,890.9 | 186.6 | 1.33 | 29.46 |
Inferred | 623 | 0.29 | 0.007 | 0.03 | 0.66 | 3,987.2 | 96.2 | 0.58 | 13.16 |
Cutoff (% Cu) | Tonnage (Mt) | Cu (%) | Mo (%) | Au (g/t) | Ag (g/t) | Cu (B lb) | Mo (B lb) |
Indicated | |||||||
0.15 | 1,233 | 0.31 | 0.006 | 0.02 | 0.55 | 8.53 | 0.16 |
0.20 | 1,137 | 0.33 | 0.006 | 0.02 | 0.57 | 8.15 | 0.15 |
0.25 | 912 | 0.35 | 0.006 | 0.03 | 0.60 | 7.02 | 0.12 |
0.30 | 639 | 0.38 | 0.006 | 0.03 | 0.64 | 5.37 | 0.09 |
0.35 | 388 | 0.42 | 0.007 | 0.03 | 0.69 | 3.58 | 0.06 |
Inferred | |||||||
0.15 | 1,017 | 0.27 | 0.004 | 0.03 | 0.61 | 6.16 | 0.10 |
0.20 | 873 | 0.29 | 0.004 | 0.03 | 0.65 | 5.59 | 0.08 |
0.25 | 594 | 0.32 | 0.004 | 0.04 | 0.73 | 4.20 | 0.05 |
0.30 | 330 | 0.36 | 0.004 | 0.04 | 0.81 | 2.60 | 0.03 |
0.35 | 152 | 0.40 | 0.004 | 0.04 | 0.86 | 1.34 | 0.01 |
· |
· |
· | Operating costs of $1.09/t for mining (plus $0.02/bench below 1,605 metres); $5.82/t for processing; and $0.30/t for G&A. |
· |
· |
· | Mineral resources were tabulated within the pit at a cut-off grade of 0.20% copper. |
· | Domains were modelled in 3D to separate oxide, mixed, and primary mineralization from surrounding waste rock. The domains were modelled to a nominal 0.075% copper cut-off. |
· | High-grade outliers in the drill hole assay database were capped to 0.75% for copper, 0.03 g/t for gold, and 2 g/t for silver prior to compositing. No capping was applied to molybdenum. |
· | Drill hole assays were composited to five metre lengths interrupted by the overall mineralization boundary. |
· | Block grades for copper, molybdenum, gold, and silver were estimated from the drill hole composites using inverse distance weighted to the second power ("ID2") into 40 x 40 x 15 metre blocks coded by domain. Molybdenum, gold, and silver were estimated for sulphide blocks only. |
· | Dry bulk density was estimated globally for each domain from drill core samples collected throughout the deposit. The oxide and mixed zones were assigned a density of 2.57 tonnes per cubic metre ("t/ |
· | All blocks were classified as Inferred mineral resources in accordance to CIM definitions. |
· | average gross metal values of: |
$3.32/lb copper for oxide and mixed |
$3.16/lb copper, $12.12/lb molybdenum, $1,057/oz gold, and $13.58/oz silver for sulphide material. |
· | metallurgical recoveries of: |
81.7% leachable oxide |
75% for mixed |
92% copper, 50% molybdenum, 50% gold and 55% silver for sulphide material. |
· | mining costs: |
oxide and mixed feed material - $1.30/ |
sulphide feed material - $1.13/ |
all waste costs - $1.13/t. |
· | process and G&A costs of: |
$5.06/t for oxide and mixed |
$6.22/t for sulphide material. |
· | pit slopes of 40 degrees in both the overlying volcanic and in the mineralized granodiorite. |
Zone | Cu Cut-off (%) | Tonnes (Mt) | Grade Cu (%) | Contained Cu (Mlb) | Mo (%) | Au (g/t) | Ag (g/t) |
Oxide Zone | 0.10 | 47.44 | 0.17 | 179.37 | - | - | - |
Mixed Zone | 0.10 | 24.69 | 0.18 | 98.12 | - | - | - |
Oxide + Mixed Zones | 0.10 | 72.13 | 0.17 | 277.49 | - | - | - |
Sulphide Zone | 0.15 | 49.86 | 0.23 | 253.46 | 0.005 | 0.01 | 0.3 |
Notes: | 1. Mineral resources are classified in accordance with the |
2. Mineral resources do not include external dilution, nor was the tabulation of contained metal adjusted to reflect metallurgical recoveries. |
3. Tonnages are rounded to the nearest 10,000 tonnes, and grades are rounded to two decimal places. |
4. Rounding as required by reporting guidelines may result in apparent summation differences between tonnes, grade, and contained metal content. |
5. Material quantities and grades are expressed in metric units, and contained metal in imperial units. |
· | Tertiary volcanics (Domain I). |
· | Granodiorite of the Yerington batholiths (Domain II). |
· | Quartz monzonite porphyry of the Yerington batholiths (Domain II). |
· | Volcanics (Domain I) |
inter-ramp angle = 52 degrees, |
bench face angle = 67 degrees, |
height between safety benches = 30 metres (double benched), and |
width of safety bench = 11 |
· | Porphyry (Domain II) |
inter-ramp angle = 39 degrees, |
bench face angle = 63 degrees, |
height between safety benches = 15 metres (single benched), and |
width of safety bench = 11 |
· | Future geotechnical studies should focus on geotechnical specific drill holes targeting the proposed wall rocks of the pit. A minimum of four inclined holes should be completed each of which may be up to 800 metres long. All holes should be "triple tube" coring system holes with splits in the core tube. HQ3 diameter core is preferred. |
· | Due to poorer rock mass quality throughout the deposit, all geotechnical holes should be surveyed with a borehole televiewer system. |
· | The hydrogeological system needs to be investigated going forward in the next study. Geotechnical mapping needs to be completed as well. |
· | Future geologic models should include interpretations of the main rock types, alteration zones, depth of weathered zones and major geological structures. |
Phase | Measured (%) | Indicated (%) | Inferred (%) |
1 | 94.9 | 4.9 | 0.2 |
2 | 73.4 | 24.0 | 2.6 |
3 | 40.5 | 52.7 | 6.8 |
4 | 40.6 | 55.9 | 3.5 |
5 | 23.9 | 66.7 | 9.4 |
Total | 43.9 | 51.3 | 4.9 |
· | Grindability testing, consisting of Bond Ball Work Index, Bond Rod Work Index, Abrasion Index, SAG Mill Competency, Crushing Work Index, and JK Drop-Weight testing was conducted on selected composites from the program. Results indicated that samples from the deposit are medium to hard when compared with database averages. The variability of results appears moderate and no unusually competent domains or zones of the deposit were identified in the samples tested. The results provide a basis for modeling and design of the comminution circuit. |
· | Initial compositing of gypsum and non-gypsum rejects from the chalcopyrite domain indicated that the presence of gypsum did not have any effect on copper recovery by flotation. Similarly, concentrate grade was found to be more influenced by pyrite content rather than gypsum. The grindability program showed the gypsum sample to be slightly more competent than other samples within the test set. |
· | Flotation flowsheet development was carried out on the domain composites, primarily chalcopyrite. From the baseline conditions established in 2012, the current program improved the flowsheet in two key areas: |
o | coarsening of the primary grind, from a P80 of 120µm to 155 µm, and |
o | simplifying the reagent suite, including elimination of specialty Cytec collector MX-3045. The number of cleaner stages was increased to three, and a small amount of CMC was added to the cleaners to control slimes. |
· | In total, five locked cycle tests were carried out, two each on the chalcopyrite and pyrite composites, and one on the bornite composite. All tests achieved excellent mass and metal accountability, as well as good stability in the last four stages. An average metallurgical projection was generated based on the results of the locked cycle work. |
· | Production composites from the periods Year 1-3 and Year 4-9 were subjected to rougher and cleaner batch flotation tests. The results were comparable to the domain composites, but slightly elevated levels of oxide copper were detected in the Year 1-3 composite. |
· | Variability testing consisted of 11 separate composites representing different spatial zones, as well as lithological and grade differences. Grindability testing of six of the variability composites displayed a relatively tight distribution of results, with Bond Ball Work Index values ranging from 15.2 to 17.5 kWh/t. Flotation tests were conducted on 10 of the variability composites and indicated that copper grade and pyrite content were the most important indicators of copper recovery and final concentrate grade, as observed in the test work on the domain and production composites. |
· | Test work aimed at developing the copper-molybdenum separation circuit has not yet achieved the target final concentrate molybdenum grade of 50% molybdenum. The work was successful at achieving high open circuit molybdenum recovery in both the rougher and cleaner stages, as well as demonstrating excellent rejection of copper to the combined tailings. Excess slimes flotation in the bulk cleaners is believed to be the result of overgrinding of the bulk rougher concentrate as part of the copper cleaning stage. Some graphitic carbon was identified in the final molybdenum concentrate produced in this program, but it is not expected to be a significant impediment to either final grade or saleability of the concentrate product. |
· | Settling and filtration tests were carried out on combined tailings samples of the Year 1-3 and Year 4-9. Both composites responded well to the anionic polyacrylamide flocculant Magnafloc 10, which is widely used in this type of application. The Year 1-3 composite demonstrated poorer settling characteristics, as compared to the later production material, requiring a higher flocculant dose and achieving a lower underflow density. Both composites were successful in reaching final cake moisture concentrations of ~15% during vacuum filtration tests, with the near-surface sample requiring a larger unit filtration area. |
· | Copper concentrate settling and filtration testing indicated that effective settling could be achieved also using Magnafloc 10. Vacuum filtration rates for the concentrate were found to be slow, but improved significantly with the addition of filter aid. |
· | Minor element analysis was conducted on concentrate samples from the domain and production composites. No elements of concern were noted, although a few composites returned slightly elevated mercury concentrations, as high as 14.1 parts per million, which may incur a small penalty depending on the specific terms of the smelter agreement. |
· | Preliminary environmental characterisation was carried out by ABA and TCLP testing on the production composite tailings samples. The results indicated that the tailings tested are potentially non-acid generating (NAG), and did not exceed Schedule 4 limits for toxicity. |
Product | Grade | Recovery, % | ||||||
Cu, % | Mo, % | Au, g/t | Ag, g/t | Cu | Mo | Au | Ag | |
Cu Concentrate | 30.0 | 0.1 | 1.65 | 36.0 | 92.0 | 17.1 | 57.0 | 55.0 |
Mo Concentrate | 2.5 | 50.0 | 0.6 | 15 | 0.1 | 50.0 | 0.2 | 0.2 |
Product | Grade | Recovery, % | ||||
Cu, % | Au, g/t | Ag, g/t | Cu | Au | Ag | |
Cu Conc – Yr 1-3 | 27.3 | 1.32 | 32.2 | 91.8 | 57.0 | 55.0 |
Cu Conc – Yr 4-9 | 28.5 | 1.81 | 41.6 | 91.6 | 57.0 | 55.0 |
Category | Pre-Production and Year 1 Capital ($M) | Sustaining Capital (Years 2-21) ($M) | Total Capital ($M) |
Open Pit | 450.6 | 88.7 | 539.3 |
Processing | 452.2 | 4.5 | 456.7 |
Infrastructure | 180.7 | 24.5 | 205.1 |
Environmental | 2.1 | 68.5 | 70.6 |
Owner's and Indirect Costs | 162.7 | 1.6 | 164.3 |
Contingency | 102.8 | 3.2 | 106.0 |
Total | 1,351.0 | 191.0 | 1,542.0 |
Note: | Total reported values in table are rounded. |
Capital Category | Total Capital ($M) | Preproduction Capital Year -3 to Year -1 ($M) | Production Capital Year 1 ($M) | Sustaining Capital Year 2+ ($M) |
Open Pit Mining | 729.6 | 255.4 | 102.7 | 371.5 |
Processing | 425.9 | 337.3 | 84.3 | 4.2 |
Infrastructure | 205.1 | 164.4 | 16.3 | 24.5 |
Environmental | 75.3 | 1.1 | 0.7 | 73.5 |
Indirects | 237.5 | 156.8 | 36.8 | 43.9 |
Contingency | 171.9 | 95.4 | 32.1 | 44.5 |
Total | 1,845.4 | 1,010.4 | 272.9 | 562.1 |
Capital Category | Indirects (%) | Contingency (%) |
Open Pit Mining | 10.0 | 10.0 |
Processing | 18.2 | 15.2 |
Infrastructure | 20.0 | 15.0 |
Environmental | 5.0 | 10.0 |
Cost Category | Total ($M) | Cost per Tonne ($/t Mill Feed) | Cost per WMT Concentrate ($/t Concentrate) |
Open Pit Mining – Mill Feed and Waste | 3,191.0 | 3.82 | - |
Processing | 4,290.7 | 5.13 | - |
G&A | 287.5 | 0.34 | - |
Subtotal On-Site Costs | 7,769.2 | 9.29 | - |
Concentrate Trucking | 529.4 | - | 60.02 |
Port Cost | 43.9 | - | 4.98 |
Shipping to Smelter/Roaster | 202.1 | - | 22.92 |
Subtotal Off-Site Costs | 775.5 | - | 87.92 |
Total | 8,544.7 | - | - |
Category | Mined ($/t) | Mill Feed ($/t) | Cu Concentrate ($/t) | ||||
Mining (mill feed and waste) | 1.50 | 4.13 | 455 | ||||
Processing | - | 4.59 | 506 | ||||
G&A | - | 0.26 | 29 | ||||
Subtotal On-Site Costs | - | 8.98 | 990 | ||||
Transportation, Port Costs, Shipping | - | 0.87 | 96 | ||||
Royalties | - | 0.07 | 7 | ||||
Total Pre-Tax Operating Cost | - | 9.92 | 1,093 | ||||
Taxes | - | 1.42 | 157 | ||||
Total Post-Tax Operating Cost | - | 11.34 | 1,250 |
Phase | Mill Feed (Mt) | Cu (%) | Mo (%) | Au (g/t) | Ag (g/t) | Mill Feed (Mt) | Cu (%) | Mo (%) | Au (g/t) | Ag (g/t) | Waste (Mt) | Strip Ratio |
Indicated | Inferred | |||||||||||
1 | 53.4 | 0.31 | 0.004 | 0.01 | 0.39 | - | - | - | - | - | 143.7 | 2.69 |
2 | 92.7 | 0.32 | 0.006 | 0.02 | 0.49 | 5.3 | 0.28 | 0.004 | 0.02 | 0.34 | 239.8 | 2.45 |
3 | 106.1 | 0.35 | 0.004 | 0.03 | 0.68 | 59.0 | 0.32 | 0.002 | 0.03 | 0.62 | 340.8 | 2.06 |
4 | 193.0 | 0.32 | 0.004 | 0.03 | 0.55 | 87.5 | 0.29 | 0.003 | 0.03 | 0.62 | 534.7 | 1.91 |
5 | 117.1 | 0.30 | 0.005 | 0.03 | 0.59 | 122.3 | 0.27 | 0.003 | 0.03 | 0.64 | 549.7 | 2.30 |
Total | 562.3 | 0.32 | 0.005 | 0.03 | 0.56 | 274.1 | 0.29 | 0.003 | 0.03 | 0.63 | 1,808.7 | 2.16 |
67% | 33% |
Metal | Unit | Low Case | Base Case | High Case |
Copper | $/lb | 2.75 | 3.00 | 3.25 |
Molybdenum | $/lb | 9.00 | 11.00 | 13.00 |
Silver | $/oz | 15.00 | 20.00 | 25.00 |
Gold | $/oz | 1,100.00 | 1,200.00 | 1,300.00 |
Metal | Unit | Low Case | Base Case | High Case |
Copper | $/lb | 2.75 | 3.00 | 3.25 |
Molybdenum | $/lb | 13.50 | 13.50 | 13.50 |
Silver | $/oz | 15.00 | 22.00 | 26.00 |
Gold | $/oz | 1,100.00 | 1,200.00 | 1,300.00 |
Cost Category | Unit | Low Case | Base Case | High Case |
Operating Costs | ||||
Open Pit Mining | ($M) | 3,625.0 | 3,625.0 | 3,625.0 |
Processing | ($M) | 4,027.3 | 4,027.3 | 4,027.3 |
G&A | ($M) | 254.8 | 254.8 | 254.8 |
Concentrate Trucking | ($M) | 521.8 | 521.8 | 521.8 |
Port Costs | ($M) | 43.3 | 43.3 | 43.3 |
Shipping to Smelter | ($M) | 199.0 | 199.0 | 199.0 |
Subtotal Operating Costs | ($M) | 8,671.2 | 8,671.2 | 8,671.2 |
Capital Costs | ||||
Open Pit Mining | ($M) | 539.3 | 539.3 | 539.3 |
Processing | ($M) | 456.7 | 456.7 | 456.7 |
Infrastructure | ($M) | 205.1 | 205.1 | 205.1 |
Environmental Costs | ($M) | 70.6 | 70.6 | 70.6 |
Indirect | ($M) | 164.3 | 164.3 | 164.3 |
Contingency | ($M) | 106.0 | 106.0 | 106.0 |
Subtotal Capital Costs | ($M) | 1,542.0 | 1,542.0 | 1,542.0 |
Revenue (after smelting, refining, roasting, payables) | ($M) | 13,840.2 | 15,285.5 | 16,730.7 |
Royalties (0.4%) | ($M) | 52.3 | 58.1 | 63.9 |
Net Revenue( less Royalties) | ($M) | 13,787.9 | 15,227.4 | 16,666.9 |
Pre-Tax Net Cash Flow (Revenue-Operating-Capital) | ($M) | 3,574.7 | 5,014.2 | 6,453.7 |
Total Tax | ($M) | 844.8 | 1,241.4 | 1,659.1 |
Post-Tax Net Cash Flow | ($M) | 2,730.0 | 3,772.8 | 4,794.6 |
Net Present Value (Pre-Tax) | ||||
NPV @ 5% | ($M) | 1,184 | 1,937 | 2,690 |
NPV @ 7.5% | ($M) | 591 | 1,158 | 1,724 |
NPV @ 10% | ($M) | 205 | 641 | 1,078 |
IRR | (%) | 11.9 | 15.8 | 19.4 |
Payback Period | Years (Year paid) | 8.3 (Yr 9) | 6.4 (Yr 7) | 5.2 (Yr 6) |
Net Present Value (Post-Tax) | ||||
NPV @ 5% | ($M) | 815 | 1,379 | 1,928 |
NPV @ 7.5% | ($M) | 339 | 770 | 1,189 |
NPV @ 10% | ($M) | 30 | 366 | 694 |
IRR | (%) | 10.3 | 13.7 | 16.8 |
Payback Period | Years (Year paid) | 8.7 (Yr 9) | 6.9 (Yr 7) | 5.7 (Yr 6) |
Cost Category | Units | Low Case | Base Case | High Case |
Operating Costs | ||||
Open Pit Mining | (M$) | 3,191.0 | 3,191.0 | 3,191.0 |
Processing | (M$) | 4,290.7 | 4,290.7 | 4,290.7 |
G&A | (M$) | 287.5 | 287.5 | 287.5 |
Concentrate Trucking | (M$) | 529.4 | 529.4 | 529.4 |
Port Costs | (M$) | 43.9 | 43.9 | 43.9 |
Shipping to Smelter | (M$) | 202.1 | 202.1 | 202.1 |
Subtotal Operating Costs | (M$) | 8,544.7 | 8,544.7 | 8,544.7 |
Capital Costs | ||||
Open Pit Mining | (M$) | 729.6 | 729.6 | 729.6 |
Processing | (M$) | 425.9 | 425.9 | 425.9 |
Infrastructure | (M$) | 205.1 | 205.1 | 205.1 |
Environmental Costs | (M$) | 75.3 | 75.3 | 75.3 |
Indirect | (M$) | 237.5 | 237.5 | 237.5 |
Contingency | (M$) | 171.9 | 171.9 | 171.9 |
Subtotal Capital Costs | (M$) | 1,845.4 | 1,845.4 | 1,845.4 |
Revenue (after smelting, refining, roasting, payables) | (M$) | 14,249.4 | 15,629.9 | 16,985.4 |
Net Cash Flow (Revenue-Operating-Capital) | (M$) | 3,859.4 | 5,239.9 | 6,595.4 |
Net Present Value (Pre-Tax) | ||||
NPV @ 5% | (M$) | 1,223 | 1,918 | 2,602 |
NPV @ 7.5% | (M$) | 589 | 1,106 | 1,614 |
NPV @ 10% | (M$) | 182 | 576 | 964 |
IRR | (%) | 11.6 | 14.8 | 17.8 |
Payback Period | Years (Year paid) | 7.9 (Yr 8) | 6.4 (Yr 7) | 5.3 (Yr 6) |
Net Present Value (Post-Tax) | ||||
NPV @ 5% | (M$) | 807 | 1,320 | 1,814 |
NPV @ 7.5% | (M$) | 304 | 690 | 1,062 |
NPV @ 10% | (M$) | -18 | 281 | 568 |
IRR | (%) | 9.8 | 12.6 | 15.1 |
Payback Period | Years (Year paid) | 8.6 (Yr 9) | 7.1 (Yr 8) | 6.0 (Yr 6) |
Cost Category | Unit | Value | |
Mill Feed | |||
Rate | t/d | 120,000 | |
Grade | Cu% | 0.30 | |
Total Operating Cost | ($/t mill feed) | 9.92 | |
Mine Life | (years) | 21 | |
Initial Capital Costs (Year -3, Year -2, Year -1) | ($M) | 1,177.7 | |
Year 1 Capital Costs | ($M) | 173.4 | |
Sustaining Capital Cost | ($M) | 191.0 | |
Total Mine Capital | ($M) | 1,542.0 | |
Payable Copper | |||
Initial 5 Years Average Annual Production | (Mlb) | 229 | |
Average Annual Production – LOM | (Mlb) | 241 | |
Total LOM Production | (Mlb) | 5,065 | |
Payable Molybdenum | |||
Initial 5 Years Average Annual Production | (Mlb) | 2.2 | |
Average Annual Production – LOM | (Mlb) | 2.2 | |
Total LOM Production | (Mlb) | 46.0 | |
Recovered Precious Metals | Gold | Silver | |
Initial 5 years Average Annual Production | (oz) | 13,500 | 302,200 |
Average Annual Production - LOM | (oz) | 21,000 | 434,400 |
Total LOM Production | (oz) | 441,300 | 9,122,800 |
Copper Concentrate | |||
Initial 5 Years Average Annual Production | (dmt) | 360,000 | |
Average Annual Production – LOM | (dmt) | 379,100 | |
Total LOM Production | (dmt) | 7,961,600 | |
Molybdenum Concentrate | |||
Initial 5 Years Average Annual Production | (dmt) | 1,900 | |
Average Annual Production – LOM | (dmt) | 1,800 | |
Total LOM Production | (dmt) | 38,400 | |
Cash Costs – Year 1 to Year 5 | Pre-tax | Post-tax | |
Copper Cash Cost without Credits (Mo, Au, Ag) | ($/lb) | 2.08 | 2.13 |
Copper Cash Cost with Credits (Mo, Au, Ag) | ($/lb) | 1.89 | 1.94 |
All In Sustaining Cost (AISC) without Credits (Mo, Au, Ag) | ($/lb) | 2.28 | 2.32 |
All In Sustaining Cost (AISC) with Credits (Mo, Au, Ag) | ($/lb) | 2.09 | 2.13 |
Cash Costs – Year 1 to Year 21 | Pre-tax | Post-tax | |
Copper Cash Cost without Credits (Mo, Au, Ag) | ($/lb) | 1.72 | 1.96 |
Copper Cash Cost with Credits (Mo, Au, Ag) | ($/lb) | 1.49 | 1.74 |
All In Sustaining Cost (AISC) without Credits (Mo, Au, Ag) | ($/lb) | 1.78 | 2.03 |
All In Sustaining Cost (AISC) with Credits (Mo, Au, Ag) | ($/lb) | 1.56 | 1.81 |
Cash Costs – LOM | Pre-tax | Post-tax | |
Copper Cash Cost without Credits (Mo, Au, Ag) | ($/lb) | 1.72 | 1.96 |
Copper Cash Cost with Credits (Mo, Au, Ag) | ($/lb) | 1.49 | 1.74 |
All In Sustaining Cost (AISC) without Credits (Mo, Au, Ag) | ($/lb) | 1.79 | 2.04 |
All In Sustaining Cost (AISC) with Credits (Mo, Au, Ag) | ($/lb) | 1.57 | 1.81 |
Net Annual Cash Flow | Pre-tax | Post-tax | |
Year 1 to Year 5 | ($M) | 161.6 | 151.3 |
Year 1 to Year 21 | ($M) | 297.9 | 238.4 |
LOM | ($M) | 200.6 | 150.9 |
· | Geotechnical, condemnation, water monitoring and exploration drilling. |
· | Environmental studies (socio-economic, air quality, acid rock drainage, hydrogeological). |
· | Engineering studies (mining, process, geotechnical, infrastructure, tailings, reclamation, operating and capital cost estimation, etc.). |
· | The Entré |
· |
Licence Name | Licence Number | Date Granted | Renewal Date | Expiration Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Javhlant | 15225A |
On . Property Location and Accessibility The Lookout Hill property is located within the Aimag (Province) of Ömnögovi 79 There are few permanent inhabitants living within the boundaries of Lookout Hill and no towns or villages of significant size. The people who do live there are mostly nomadic herders. Entrée periodically engages in small programs of basic infrastructure improvements to assist the nearby communities in the vicinity of the Climate, Local Resources, Physiography The Lookout Hill property is located in the southern Gobi The Undai River is the most significant hydrological feature of the area. A tributary of the river passes through the site. The southern Gobi region has a continental, semi-desert climate with cool springs and autumns, hot summers, and cold winters. The average annual precipitation is approximately Temperatures range from an extreme maximum of about Wind is usually present at the site. Very high winds are accompanied by The flora in the Lookout Hill property area has been classified as representative of the eastern region of the Gobi Central Zone within the Central Asian Greater Zone. Vegetation tends to be homogenous across the Eastern Gobi Desert Steppe and consists of drought-tolerant shrubs and thinly distributed low grasses. Four rare plant species occur within the mining licence area. History Entrée entered into an option agreement with a private Mongolian mining company, Mongol Gazar Co. Ltd. ("Mongol Gazar") in 2002, to acquire three exploration licences. Mongol Gazar was originally awarded the exploration licences by the Mongolian Government in March and April of 2001. In September 2003, Entrée entered into a purchase agreement with Mongol Gazar and its affiliate MGP LLC, which replaced the option agreement. The Shivee Tolgoi and Javhlant exploration licences, which form the Lookout Hill property, were converted to mining licences in October 2009. The third exploration licence, Togoot, was converted to a mining licence in June 2010, and was subsequently sold by Entrée in November 2011 to an arm's length private Mongolian company. Regional Geology The Lookout Hill property lies within the Palaeozoic 80 Major structures in this area include the Gobi–Tien Shan sinistral strike-slip fault system, which splits eastward into a number of splays, Local Geology The Oyu Tolgoi series of porphyry copper-gold deposits, which includes the Entrée/Oyu Tolgoi JV's Hugo North Extension and Heruga deposits, occur along a The pre-Carboniferous (probably Devonian) stratigraphy of the Oyu Tolgoi series of deposits consists of massive augite basalt, conglomerate, dacitic tuffs, and siltstones, which are overthrust by the The Hugo North Extension deposit within the 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 The Heruga deposit contains copper-gold-molybdenum 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 mineralized Qmd. Molybdenite mineralization seems to spatially correlate with stronger quartz-sericite alteration. Exploration – Entrée-OTLLC Joint Venture Property From 2002 to 2004, Entrée undertook mapping, prospecting, completed extensive soil sampling and conducted IP, gravity, and magnetometer surveys over the area immediately north of the Oyu Tolgoi mining licence boundary. After signing the Earn-in Agreement in October 2004, all work on the Entrée/Oyu Tolgoi JV Property was conducted by OTLLC, the operator, and included geophysics (predominantly IP), mapping and RC and diamond drilling. The majority of the diamond drilling has been exploration related and includes 118 holes totalling 95,748 metres on the Hugo North Extension deposit and 45 holes totalling 56,957 metres on the Heruga deposit. No significant exploration work has been undertaken by OTLLC on the Entrée/Oyu Tolgoi JV Property since February 2013. Two targets were explored with diamond drilling in 2012: the Airport anomaly west of Ulaan Khud, and targets along strike from the Hugo North Extension deposit. Total drilling on the Entré In 2012, diamond drilling tested a Cretaceous covered area above an IP-gravity target, located seven kilometres north of Hugo North Extension and to the west of Ulaan Khud. Fifty-two shallow holes totalling 3,327 metres were completed on 165-330 metre spacing. The best assay result from this shallow drilling was 11.1 metres averaging 0.15% copper with 0.26 g/t gold (from 52 metres depth). From September through December 2012, a new drill hole (EGD157) located 750 metres north of Hugo North Extension was completed to 2,380 metres without intersecting significant mineralization. In December 2012, two drill holes totalling 942 metres were completed to test targets generated by the shallow drilling of the Cretaceous covered area. Neither hole intersected significant mineralization. In 2012 and 2013, OTLLC drilled six holes within the Javhlant mining licence, for a total of 6,736 metres. Three exploration holes were completed to the east of Heruga: one hole (EJD0041) was collared into the core of the deposit but lost at 418 metres; a daughter hole (EJD0034A) was completed on the east side of the Heruga deposit; and another hole (EJD0043) tested the Southwest Heruga target. Three 2012 holes (EJD0042, EJD0043, and EJD0044) failed to intersect significant mineralization. Hole EJD0034A was drilled as a daughter hole starting at 848 metres below the original to a depth of 1,884.5 metres. Assays returned three mineralized intervals, the most notable being 590 metres of 0.33% copper, 0.70 g/t gold and 56 ppm molybdenum, or 0.80% In December 2012, EJD0044 was collared at the north end of Heruga on the Javhlant mining licence, but in early February 2013, the hole passed onto the Oyu Tolgoi licence at a depth of approximately 1,500 metres and still above the mineralized zone. The hole terminated February 26, 2013 at a depth of 2,067 metres within the Oyu Tolgoi licence. Hole EJD0045 tested mineralization on the east side of the Heruga Qmd unit but was terminated at 1,450 metres after hitting a late-stage fault prior to intersecting the target. The target remains valid. No significant exploration work has been undertaken by OTLLC on the Joint Venture Property since February Sampling programs on the Entrée/Oyu Tolgoi JV Property have included soil, rock chip, drill core and RC techniques. All of the sampling on the Entrée/Oyu Tolgoi JV Property is carried out by OTLLC personnel or contractors, except for early-stage sampling by Entrée, prior to the Earn-in Agreement being signed in October 2004. All of the early-stage sampling methods have been superseded by the drilling, which forms the basis of the current mineral resource estimates. The facility is well-equipped and the staff well-trained by SGS Mongolia. All sample preparation procedures and QA/QC protocols were established by OTLLC in consultation with SGS Mongolia. The maximum sample preparation capacity has been demonstrated to be around 600 samples per day when fully staffed. The facility has one large drying oven, two Terminator jaw crushers, and two LM2 pulverisers. The crushers and pulverisers have forced air extraction and compressed air for cleaning. Smee (2008) noted that some of the equipment (in particular the crushers) were in poor condition and deficient in a number of areas but also noted that all concerns had been addressed as of April 10, 2008. The samples were initially assembled into groups of 15 or 16 samples, and then 4 or 5 quality control samples are interspersed to make up a batch of 20 samples. The quality control samples comprise one duplicate split core sample, one uncrushed field blank, a reject or pulp preparation duplicate, and one or two standard reference material (SRM) samples (one < 2% copper and one > 2% copper if higher grade mineralization is present based on visual estimates). The two copper SRMs are necessary because SGS Mongolia uses a different analytical protocol to assay all samples > 2% copper. 82 The split core, reject, and pulp duplicates were used to
The OTLLC produced 3D geological models of the major structures and lithological units based on the structural and geological information outlined in LHTR16. For each deposit, appropriate copper and gold shells at various cut-off grades were also defined. These shapes were then edited on plan and section views to be consistent with the structural and lithological models and the drill assay data. Checks on the structural, lithological, and grade shell models indicated that the shapes honoured the drillhole data and interpreted geology. The Hugo North Extension and Heruga a Feasibility Study or Pre-Feasibility study. The grade and copper:sulfur ratios.Table 15 – LHTR16 Entrée/Oyu Tolgoi JV Mineral Resource Summary
Notes:
Hugo North Extension Deposit The Hugo North Extension A sub-celled volume model was developed from these updated interpretations using parent cell dimensions equal to 15 metres x 15 metres x 15 metres and minimum sub-cell dimensions down to 5.0 metres x 5.0 metres x 5.0 metres to allow good resolution at interpreted boundaries. Interpolation was undertaken into the mineralized 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 metre 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 Heruga Deposit The Heruga previously reported mineral resource (2013). Modelling of mineralization zones for resource estimation purposes revealed that there is an upper 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 metres. The mineral resource estimate was originally prepared by OTLLC. A close-off date of May 31, 2009 for survey (collar and downhole) data was utilised for constructing the geological domains. The effective date for the Heruga mineral resource is March 30, 2010. OreWin has reviewed the Heruga resource estimate and is of the opinion that the original data is still reliable and current and there have been no material changes resulting from drilling completed after May 2009. 84 OTLLC created 3D shapes (wireframes) of the major geological features of the Heruga deposit. To assist in the estimation of grades in the model, OTLLC 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-mineralization faults. For copper, a single grade shell at a threshold of 0.3% copper was used. For gold, wireframes were constructed at thresholds of 0.3 g/t gold and 0.7 g/t gold. For molybdenum, a single grade shell at a threshold of 100 ppm molybdenum 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 OTLLC and the methods used were very similar to those used for the Hugo North Extension resource estimate. Interpolation domains were based on mineralized 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 metre downhole composites; block sizes were 20 metres x 20 metres x 15 metres. Blocks within 150 metres 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 metres. CuEq Formula Derivation 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 The base formula for Hugo North Extension CuEq = 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 CuEq = 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 Entrée/Oyu Tolgoi JV Property – Mineral Reserve LHTR16 updates Entrée's 2013 technical report on the Lookout Hill property filed in March 2013. LHTR16 was prepared for Entrée by OreWin, and is based on information contained within the 2014 Oyu Tolgoi Feasibility Study ("OTFS14") completed in July 2014 by OTLLC and Turquoise Hill's technical report titled "Oyu Tolgoi 2014 Technical Report") ("2014 OTTR") filed by Turquoise Hill on October 28, 2014. 2014 OTTR is Turquoise Hill's current technical report for the Oyu Tolgoi mine and related projects. LHTR16 aligns the mine plan for the Entrée/Oyu Tolgoi JV Property Reserve Case reported by Entrée with the OTTR. The Table 16 shows the underground mineral reserve for mineral reserve. Table 16 – LHTR16 Entré
Notes:
The reserve was prepared by OreWin. Mineral reserves are classified in accordance with the CIM Definition Standards for Mineral Resources and Mineral Reserves and prepared in accordance with NI 43-101. Mining Methods Oyu Tolgoi, including the Entrée/Oyu Tolgoi JV 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 kilometre north-north‑east trending belt. The Oyu Tolgoi trend is still open to the north and south and the deposits have not been closed off at depth. Mineral reserves and resources estimated on these deposits form the basis of future project development. The deposits are located both on the Oyu Tolgoi mining licence and on the adjacent Entrée/Oyu Tolgoi JV Property, but the Entrée/Oyu Tolgoi JV deposits will be developed, operated and processed by OTLLC under the terms of the Entrée/Oyu Tolgoi JV. 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 Entrée/Oyu Tolgoi JV 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 metres and 1,400 metres 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. The mining areas included in the Reserve Case are shown schematically in Figure 7. The mine design consists of 203 kilometres 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 LOM material handling system will transport material to surface by a series of conveyors. An overview of Lift 1 development is shown in Figure 8. The underground mine will operate at a nominal 95 ktpd. The long operating life of the mine supports the initial capital investment. Lift 1 cave dimensions are summarised in Table 17. 86 Table 17 – Hugo North (including Hugo North Extension) Cave Dimensions
Figure 7 – LHTR16 Reserve Case Mining Areas Figure by OreWin 2014. 87 Figure 8 – LHTR16 Hugo North (Including Hugo North Extension) Lift 1 Mine Design Modified from OTLLC 2014 figure by Entrée 2016. Metallurgy and Process A substantial amount of metallurgical test work has been conducted at the Oyu Tolgoi project, including the Entrée/Oyu Tolgoi JV Property. The latest work has focused on verifying assumptions made during design with actual operation experience gained from the start of commissioning the concentrator. In addition, further flotation variability tests have been conducted on Hugo North, Central zone, and blends of Southwest zone and Hugo North mineralization. On completion of the variability flotation test work on the individual deposits a series of locked cycle tests were conducted on further composites representing chronological blends of ore planned to feed the mill in the mine plan. Oyu Tolgoi employs a conventional SAG mill / ball mill / grinding circuit (SABC) followed by flotation, as shown in the basic flowsheet (Figure 9 below). OTLLC'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 SOT Southwest Zone pit. Combined with Hugo North (including Hugo North Extension) 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 program 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:
88 Figure 9 – Basic Oyu Tolgoi Flowsheet (Phase 1) Figure by OTLLC 2014. 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 10 below. The Entrée/Oyu Tolgoi JV's Hugo North Extension Lift 1 mining area is immediately north of the Oyu Tolgoi mining licence. In LHTR16, power has been assumed to be purchased from a Mongolian supplier. On August 14, 2014, Turquoise Hill announced that OTLLC had signed a Power Sector Cooperation Agreement with the Government of Mongolia, 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 Entrée/Oyu Tolgoi JV Property) as the primary customer. In May 2015, as part of the Mine Plan, OTLLC committed to providing working assumptions for a financing plan towards supporting a long‑term power agreement with a Tavan Tolgoi power station. 89 Figure 10 – Site Plan Figure by OreWin 2016. Transport and Logistics Concentrate and supplies are currently transported along a 105 kilometre road that has been constructed to the Mongolian-Chinese border crossing at Gashuun Sukhait. The Government of Mongolia has committed to providing OTLLC with non-discriminatory access to any railway constructed between Mongolia and China. The Government of Mongolia is currently supporting construction of a standard gauge single-track heavy-haul rail from the Tavan Tolgoi coal mine (approximately 120 kilometres to the north-west of the Lookout Hill property) to Gashuun Sukhait (Figure 11 below), 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 mining licence 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. 90 Figure 11 – Oyu Tolgoi Regional Road and Rail Figure by Entrée 2016. 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 11 above). 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. OTLLC'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. Environmental Studies and Social Impact Assessment OTLLC has completed a comprehensive Environmental and Social Impact Assessment ("ESIA") for Oyu Tolgoi, including the Entrée/Oyu Tolgoi JV 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. 91 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 OTLLC 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:
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 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. Following submission and approval of the initial DEIAs, the Government of Mongolia requested that OTLLC 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 Government of Mongolia (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 OTLLC. Capital and Operating Costs Under the terms of the Entrée/Oyu Tolgoi JV, OTLLC is responsible for 80% of all costs that are 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%, other than with respect to costs relating to construction or operation of mill, smelter and other processing facilities, the treatment of which is described below. Under the 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. Under the terms of the Entrée/Oyu Tolgoi JV, any mill, smelter and other processing facilities and related infrastructure will be owned exclusively by OTLLC and not by Entrée. All costs relating to construction or operation of mill, smelter and other processing facilities are solely for the account of OTLLC, with Entrée paying milling and smelting charges 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. 92 The average operating costs for the Entrée/Oyu Tolgoi JV are shown in Table 18. Table 18 – Entrée/Oyu Tolgoi JV Average Operating Cost Summary
Note: Includes mining and process assets depreciation and administration charge. The Entrée/Oyu Tolgoi JV capital expenditure including expansion and sustaining capital is shown in Table 19. The concentrator capital cost is applied proportionally by the total tonnes processed as a depreciation charge to the Entrée/Oyu Tolgoi JV. Table 19 – Entrée/Oyu Tolgoi JV Capital Expenditure
Note: 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. Capital expenditure includes expansion and sustaining costs. Entrée is responsible for 20% of reported Entrée/Oyu Tolgoi 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 20. Cash costs are those costs relating to the direct operating costs of the mine site, namely:
Table 20 – Entrée/Oyu Tolgoi JV Unit Operating Costs by Copper Production
Note: Includes mining and process assets depreciation and administration charge. 93 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. A summary of the Entrée/Oyu Tolgoi JV Property production and financial results for the LHTR16 Reserve Case is shown in Table 21 below. The after-tax NPV8 attributable to Entrée for the LHTR16 Reserve Case is $106 M. The NSR calculation reflects the net value received for the ore by the mine (after all costs and charges). An NSR has been calculated on a US Dollar per tonne basis for each of the mineral reserve areas in the Oyu Tolgoi project. The Hugo North Extension has the highest NSR calculated for all the deposits at Oyu Tolgoi. Table 21 – Entrée/Oyu Tolgoi JV Summary Production and Financial Results
Notes:
94
Table 22 – Entrée Financial Results – Discount Rate Sensitivity – LHTR16 Reserve Case
The Entrée/Oyu Tolgoi JV and OTLLC processing tonnages and copper, gold, and silver metal production in the LHTR16 Reserve Case is shown in Figures 12 to 15 below. The production shown is the total production from the LHTR16 Reserve Case concentrate and metal production are summarised in Figure 16 below. Entrée's cash flows from the Reserve Case are shown in Figure 17 below. 95 Figure 12 – Processing by Source – LHTR16 Reserve Case Note: Entrée has a 20% interest in ore extracted from "Hugo North EJV". "EJV" is the Entrée/Oyu Tolgoi JV. Figure 13 – Copper Production – LHTR16 Reserve Case Note: Entrée has a 20% interest in ore extracted from"Hugo North EJV". "EJV" is the Entrée/Oyu Tolgoi JV. 96 Figure 14 – Gold Production – LHTR16 Reserve Case Note: Entrée has a 20% interest in ore extracted from"Hugo North EJV". "EJV" is the Entrée/Oyu Tolgoi JV. Figure 15 – Silver Production – LHTR16 Reserve Case Note: Entrée has a 20% interest in ore extracted from"Hugo North EJV". "EJV" is the Entrée/Oyu Tolgoi JV. 97 Figure 16 – Entrée/Oyu Tolgoi JV Concentrate and Metal Production – LHTR16 Reserve Case Note: Entrée has a 20% interest in ore extracted from"EJV". "EJV" is the Entrée/Oyu Tolgoi JV. Figure 17 – Entrée Cumulative Undiscounted Cash Flow – LHTR16 Reserve Case Alternative Production Cases Oyu Tolgoi is a very large project that includes four separate deposits. The long-term development of Oyu Tolgoi would 98 While it is outside of the scope of reserve reporting, as part of the long-term development strategy OTLLC continues to examine the alternative production cases to better define future work plans and prepare for investment decision points. The mine designs developed by OTLLC and considered in the alternative production cases are shown schematically in Figure 18 and include mineral reserves from The mine designs noted above that are in the alternative production cases and on the Entrée/Oyu Tolgoi JV Property are:
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 Development of these deposits will require separate development decisions in Figure 19 shows an Figure 18 – Alternative Production Cases Mining Areas 99 Figure 19 – Oyu Tolgoi Project Development Options The initial production case, LOM 100, assumes that there is strategic planning that is being undertaken by OTLLC. The three alternative production cases
The work on the alternative production cases is not yet at the Feasibility Study stage, in particular the definition of the expansion sizes and costing of the cases. OreWin recommends that the options be studied further and that the timing of the new mines be defined in more detail. 100 Figure 20 – Alternative Production LOM 140 Inferred mineral resources are considered too speculative geologically to have the economic considerations applied to them that would Figure 21 – Alternative Production LOM 260 Inferred mineral resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorized as mineral reserves. Entree has a 20% interest in material extraced from Hugh North Extension Lift 1 (HN EJV1), Hugh North Extension Lift 2 (HN EJV2) and Heruga EJV. 101 Figure 22 – Alternative Production LOM 350 Inferred mineral resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorized as mineral reserves. There is no certainty that alternative production cases will be realized. Entree has a 20% interest in material extraced from Hugh North Extension Lift 1 (HN EJV1), Hugh North Extension Lift 2 (HN EJV2) and Heruga EJV. Entrée/Oyu Tolgoi JV Future Work The large mineral resource base at the entire Oyu Tolgoi project, Oyu Tolgoi project. Exploration and development of the The Entrée/Oyu Tolgoi JV 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 in the analysis of all of the alternative production cases. 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 Turquoise Hill and OTLLC to study the options further and that the timing of the new mines be defined in more detail. 102 Exploration and development of the Entrée/Oyu Tolgoi JV Property is under the control of Rio Tinto on behalf of manager OTLLC. The future work recommendations in the 2014 OTTR, although focussed on the Oyu Tolgoi licence, will be of benefit to Entrée as they will include examination of the Infill drilling to reserves. Shivee West Entrée has a 100% interest in the 23,114 ha western portion of the Shivee Tolgoi mining licence. To date, no economic zones of precious or base metals mineralization have been outlined on Shivee West, Sampling programs at Shivee West include soil, soil-MMI, rock chip, drill core and RC samples. All of the sampling was carried out by Entrée personnel or its contractors. Since 2002, Entrée has completed 65 diamond core holes totalling 38,244 metres and 34 RC holes totalling 4,145 metres at Shivee West. There has been no drilling on the 100%-Entrée ground since 2011. In 2011, RC drilling was conducted over the Zone III near-surface epithermal gold target and expanded north, where a new gold zone In 2012, The Khoyor Mod target is located approximately Zone I is prominent 2 kilometre long area of argillic and advanced argillic alteration. This zone has received considerable attention using mapping, RC and core drilling, geophysics (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 kilometre by 3.8 kilometres in size. The best drill results from Zone 1 were 0.1%–0.2% copper over widths of 2.0–4.0 metres. No exploration NON-MATERIAL PROPERTIES Entrée has interests in other non-material properties in the United States, Australia and Peru as follows. For additional information regarding these non-material properties, including Entré Financial Review and Results - A. Operating Results" below.
103
Soil sampling by the joint venture over the Golden Sophia shallow gold target confirmed the previous Battle Mountain gold in soil anomaly and defined a new, linear gold anomaly located approximately 700 metres to the northeast.
Item 4A. Unresolved Staff Comments None. Item 5. Operating and Financial Review and Prospects We are Mongolia, through the Entrée/Oyu Tolgoi JV. The Ann Mason Project includes the Ann Mason and the Blue Hill deposits, which host Measured and Indicated (Ann Mason) and Inferred mineral resources. The Company reported the results of the Ann Mason deposit 2015 PEA on September 9, 2015. The plan Our financial statements for the years ended December 31, 2015, 2014, Critical Accounting Policies and Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results could differ from these estimates. 104 The Company must make estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, the recoverability of deferred tax assets, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes in these estimates may result in an increase or decrease to the tax provision in a subsequent period. Recovery of a portion of the deferred tax assets is impacted by Company plans with respect to holding or disposing of certain assets. Changes in economic conditions, exploration results, metal prices and other factors could result in changes to the estimates and judgements used in determining the income tax expense. The Company capitalizes the cost of acquiring mineral property interests, including undeveloped mineral property interests, until the viability of the mineral interest is determined. Capitalized acquisition costs are expensed if it is determined that the mineral property has no future economic value. The Company must make estimates and judgments in determining if any capitalized amounts should be written down by assessing if future cash flows, including potential sales proceeds, related to the mineral property are estimated to be less than the property's total carrying value. The carrying value of each mineral property is reviewed periodically, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Reductions in the carrying value of a property would be recorded to the extent that the total carrying value of the mineral property exceeds its estimated fair value. The Company follows accounting guidelines in determining the value of stock option compensation, as disclosed in Note 9 to the Annual Financial Statements for the year ended December 31, The Changes in Accounting Policies In In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of disclosures. A detailed summary of all of the 2015.
The following discussion is intended to supplement the audited consolidated financial statements of the Company for the years ended December 31, 2015, 2014 105 SELECTED ANNUAL FINANCIAL INFORMATION
For the year ended December 31, REVIEW OF OPERATIONS Results of operations are summarized as follows:
106 Exploration expenditures are summarized as follows:
UNITED STATES Ann Mason Project, Nevada The Ann Mason Project, located in the Yerington District of Nevada, is one of Entré to support a future Pre-Feasibility study. From April to July 2013, Entrée completed The 2013 drilling at Blue Hill successfully located westward extensions of the current deposit; however, to the east, near-surface oxide and mixed mineralization is truncated by the Two shallow, widely-spaced Amendment #2 to expand Entré BLM. On July 16, 2014, the Company announced 107 RC pre-collars were generally restricted to barren, overlying volcanics. Drilling changed to HQ diameter core which was continually sampled over Samples were submitted to On January 21, 2015, the Company reported assay results from the first 20 holes with the remaining 20 holes being reported on March 10, 2015. Entrée commenced a four-hole, widely-spaced exploration drill program in late January 2015 to test several geophysical and geological targets to the west of Ann Mason and to the south of Blue Hill. The program terminated mid-April 2015 and comprised 2,434 metres of combined core and RC drilling. An additional RC pre-collar was completed but not deepened with core. Sample results from the short program included 24 metres of 0.22% copper and 0.053 g/t gold (sulphide) at 546 metres in hole EG-AM-15-080 and 9.5 metres of 0.31% copper (mainly chalcocite), 0.334 g/t silver and 0.029 g/t gold at a depth of 24.38 metres in hole EG-AM-15-081. The area remains open for further systematic testing. The Company completed a comprehensive metallurgical test program at SGS Minerals Services in Lakefield, Ontario using 1,700 kg of split core and assay reject samples from the Ann Mason deposit. The program was initiated in April, 2015 and testwork was eventually completed in January 2016. The principal objective of the metallurgical test program was to advance metallurgical understanding of Ann Mason mineralization to a level that would support a future Pre-Feasibility study, by selecting a larger, more significant sample set to include various geometallurgical domains and production periods. On September 9, 2015, the Company announced the results of the 2015 PEA. The 2015 PEA was filed on October 23, 2015. The area between the Ann Mason and Blue Hill deposits has seen only wide-spaced, mostly shallow drilling to date and remains a high priority target for future exploration for both additional sulphide and oxide mineralization. South of Ann Mason, soil surveying and mapping suggests potential for near surface oxide copper mineralization, which could have a positive impact on the Ann Mason Project. Several other high-priority targets on the Ann Mason Project property require further exploration. For the year ended December 31, related expenditures. Lordsburg, New Mexico On May 2, 2012, Entrée entered into an agreement (the "Purchase Agreement") to purchase a 100% interest in two porphyry copper targets in New Mexico Pursuant to the Purchase Agreement, Entrée paid $100,000 and issued 500,000 The Lordsburg claims cover 2,013 108 The proposed Plan of Operations for Lordsburg has been approved by the BLM and an Application to Conduct Mineral Exploration has been approved by the New Mexico Division of Mining and Minerals. The Lordsburg Plan of Operations/Environmental Assessment and Application to Conduct Mineral Exploration provides for drilling on 65 additional sites and 28.2 acres of surface disturbance. MONGOLIA No significant exploration has been completed by OTLLC on the 2016 has not yet been finalized. Since formation, and as of December 31, Property Entrée has a 100% interest in the western portion of the Shivee Tolgoi mining licence. No work has been completed on Shivee West For the year ended December 31, 2015, Mongolia expenses were $1,488,452 compared to $1,672,341 during the year ended December 31, 2014. The AUSTRALIA Blue Rose Joint Venture Entrée has a An application to renew the tenement for an additional 2-year term was filed on June 11, 2015 and was approved effective August 4, 2015. In September 2010, the joint venture entered into an agreement with Bonython Metals Group Pty Ltd ("BMG"), a private Australian resource company. BMG purchased 100% of the iron ore rights on the joint venture property in exchange for 6% of On October 23, 2013, the Blue Rose joint venture filed a Part 9B native title application under the South Australia Mining Act and the Wilyakali and Ngadjuri groups registered as native title claimants. Native title agreements must be concluded with claimants prior to any exploration on the joint venture group was signed in late March 2014. PERU Lukkacha Project In September 2010, Entrée entered into a conditional agreement with a private Peruvian company whereby Entrée may acquire an initial 70% interest in the Lukkacha property located in Tacna Province of southeastern Peru. The property is situated within 50 kilometres of the international border with Chile, and initiation of work is subject to Entrée obtaining a Supreme Decree from the Peruvian government allowing it to work on the property. Subject to obtaining the Supreme Decree, Entrée may earn a 70% interest by making cash payments totaling $215,000 and expending a minimum of $1.5 million on exploration, to include a minimum 6,000 metres of diamond drilling, within 24 months. Once Entrée has earned a 70% interest, it may acquire a further 30% interest by paying the vendors $2 million within 24 months. The vendors would retain a 2% NSR royalty, half of which may be purchased at any time for $1 million. The property consists of seven concessions totaling 4,400 ha which cover two large areas of surface alteration, iron oxides and quartz veining approximately 50 kilometres along the structural trend southeast from the giant Toquepala mining operation of Grupo Mexico. The property has never been drilled and represents a unique opportunity for early stage exploration within an under-explored major copper district. Further exploration (geophysics and drilling) is dependent on receipt of the Supreme Decree. As a first step in obtaining the Supreme Decree, a joint military inspection of the property took place on September 12, 2013. The military submitted a favorable written opinion to the General Secretary of the Ministry of Defense on September 15, 2013. During 2014, Entrée held several meetings with the local village to discuss completion and registration of a community economic and land use agreement. For the year ended December 31, 2015, Lukkacha expenses were $39,265 compared to $78,925 during the year ended December 31, 2014. Cañariaco Project Royalty In September 2015, the Company entered into an agreement with Candente Copper Corp. (TSX:DNT) ("Candente") to acquire a 0.5% NSR royalty on Candente's 100% owned Cañariaco project in Peru for a purchase price of $500,000. The Cañariaco project includes the Cañariaco Norte copper-gold-silver deposit, as well as the adjacent Cañariaco Sur and Quebrada Verde prospects, located within the western Cordillera of the Peruvian Andes in the Department of Lambayeque, Northern Peru. GENERAL AND ADMINISTRATIVE For the year ended December 31, expenses. STOCK-BASED COMPENSATION For the year ended December 31, 2013. INTEREST INCOME AND EXPENSE For the year ended December 31, 110 VALUATION OF LONG-TERM INVESTMENT Equity Method Investment As further described in the notes to the Annual Financial Statements, Entrée accounts for its interest in a joint venture with OTLLC as a 20% equity investment. As at December 31, OUTLOOK Entrée is primarily focused on exploring its principal properties in Nevada and Mongolia. In addition, Entrée is engaged in evaluating acquisition opportunities which are complementary to its existing projects, particularly large tonnage base and precious metal Entrée has not generated any revenue from operations since its incorporation and Entrée anticipates that it will continue to incur operating expenses without revenues until the
The Company is exposed to currency risk by incurring certain expenditures in currencies other than the Canadian dollar. In addition, as certain of the Company's consolidated subsidiaries' functional currency is the United States dollar, the Company is exposed to foreign currency translation risk. The Company does not use derivative instruments to reduce this currency risk. The Company is also subject to legal and political risk in Mongolia. Government policy may change to discourage foreign investment, nationalization of the mining industry may occur and other government limitations, restrictions or requirements may be implemented. There can be no assurance that Entrée's assets will not be subject to nationalization, requisition, expropriation or confiscation, whether legitimate or not, by any authority or body. In addition, there can be no assurance that neighbouring countries' political and economic policies in relation to Mongolia will not have adverse economic effects on the development of Entrée's assets, including with respect to ability to access power, transport and sell products and access construction labour, supplies and materials. The political, social and economic environment in Mongolia presents a number of serious risks, including: uncertain legal enforcement; invalidation, confiscation, expropriation or rescission of governmental orders, permits, licences, agreements and property rights; the effects of local political, labour and economic developments, instability and unrest; corruption, requests for improper payments or other corrupt practices; and significant or abrupt changes in the applicable regulatory or legal climate. For a more extensive discussion of risks and uncertainties to which Entrée is exposed, the reader should refer to the section titled "Risk Factors" above.
To date, Entrée has not generated revenues from its operations, has been dependent on equity and production-based financings for additional funding and is considered to be in the exploration stage. Working capital on hand at December 31, Balance after the foregoing refund must be returned in cash with interest. Under the terms of the Entré Operating activities Cash used in operations was $9,821,492 for the year ended December 31, 2015 compared to $12,617,637 for the year ended December 31, 2015 partially offset by costs associated with certain staff reductions. Financing activities Cash provided by financing activities during the year ended December 31, 2015 and 2014 and
Investing activities During the year ended December 31, Outstanding share data As at December 31, 2016. Capital Resources Entrée had no commitments for capital assets at December 31, 2015. At December 31, 112
None.
While the Company does not have any producing mines it is directly affected by trends in the metal industry. At the present time global metal prices are extremely volatile. Base metal prices and gold prices, driven by rising global demand, climbed dramatically and approached near historic highs Overall market prices for securities in the mineral resource sector and factors affecting such prices, including base metal prices, political trends in the countries in which such companies operate, and general economic conditions, may have an effect on the terms on which financing is available to the Company, if available at all. Except as disclosed, the Company does not know of any trends, demand, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, its liquidity either materially increasing or decreasing at present or in the foreseeable future. Material increases or decreases in liquidity are substantially determined by the success or failure of the The
The Company has no off-balance sheet arrangements except for the contractual obligation noted below.
The following table lists, as at December 31,
The Company seeks safe harbor for our forward-looking statements contained in Items 5.E and F. See the heading "Cautionary Note Regarding Forward-Looking Statements" above. Item 6. Directors, Senior Management and Employees
The following is a list of the The Board adopted a majority voting policy in May 2013. If the number of shares 113 The The Rt. Honourable Lord Howard of Lympne, Chairman and Director The Rt. Honourable Lord Howard of Lympne ("Michael Howard" or "Lord Howard") has been a director of the Company since May 16, 2007, served as the He is the former leader of the Conservative Party in Britain, a distinguished lawyer, and served as a Member of Parliament in Britain for 27 years. He filled many government posts, including Home Secretary, Secretary of State for Employment and Secretary of State for the Environment, as well as Shadow Foreign Secretary and Shadow Chancellor. After his retirement from the House of Commons at the 2010 General Election, Lord Howard was created a Life Peer. He was created a Companion of Honour in the James Harris, Director Mr. Harris has been a director of the Company since January 29, 2003, served as the Mr. Harris was formerly a corporate, securities and business lawyer with over 30 Mark Bailey, Director Mr. Bailey has been a director of the Company since June 28, 2002. Mr. Bailey is a mining executive and registered professional geologist with Mr. Alan Edwards, Director Mr. Edwards has been a director of the Company since March 8, 2011. Mr. Edwards has more than 30 years of diverse mining industry experience. He is a graduate of the University of Arizona, where he obtained a Bachelor of Science Degree in Mining Engineering and an MBA (Finance). Mr. Edwards is currently the President of AE Consulting, a Colorado based company. Mr. Edwards is the non-executive Chairman of the Board of 114 Gorden Glenn, Director Mr. Glenn has been a director of the Company since June 18, 2012. Mr. Glenn has over Anna Stylianides, Director Ms. Stylianides has been a director of the Company since July 13, 2015. Ms. Stylianides has over 20 years of experience in global capital markets and has spent much of her career in investment banking, private equity, and corporate management and restructuring. She began her career in corporate law by joining the firm of Webber Wentzel Attorneys in 1990 after graduating from the University of the Witwatersrand in Johannesburg, South Africa. In 1992, she joined Investec Merchant Bank Limited where she specialized in risk management and gained extensive experience in the areas of corporate finance, structured finance, mergers and acquisitions, structuring, specialized finance and other banking and financial services transactions. She was also involved in designing and structuring of financial products for financial institutions and corporations. Ms. Styliandes is currently the Executive Co-Chairman of Eco Oro Minerals Corp., a precious metals exploration and mining development company with a portfolio of projects in northeastern Colombia, and a director of Capfin Partners, LLC, Altius Minerals Corporation and the Fraser Institute. Stephen Scott, Interim Chief Executive Officer Mr. Scott was appointed to the position of Interim Chief Financial Officer on November 16, 2015. Mr. Scott has more than twenty five years global experience in all mining industry sectors. Most recently he was the companies. Bruce Colwill, Chief Financial Officer Mr. Colwill was appointed to the position of Chief Financial Officer on February 1, 2011. Mr. Colwill has over 20 years of experience with public and private companies, in a variety of sectors including oil and gas, biotech, financial services and manufacturing. Most recently, Mr. Colwill served as Chief Financial Officer of Transeuro Energy Corp., a public oil and gas company and acted as a financial consultant to private and public companies. Between 2001 and 2009, Mr. Colwill served as Chief Financial Officer of Neuromed Pharmaceuticals Ltd. Mr. Colwill began his career with KPMG, first in Canada and then in Poland. Mr. Colwill is a Chartered Accountant and a member of the Canadian Institute of Chartered Accountants and the Institute of Chartered Accountants of British Columbia. Mr. Colwill holds a BBA from Simon Fraser University. Susan McLeod, Vice President, Legal Affairs and Corporate Secretary Ms. McLeod joined the Company as Vice President, Legal Affairs on September 22, 2010 and was appointed Corporate Secretary on November 22, 2010. 115 Prior to joining Entrée, Ms. McLeod was in private practise in Vancouver, Canada since 1997, most recently with Fasken Martineau DuMoulin LLP (from 2008 to 2010) and P. MacNeill Law Corporation (from 2003 to 2008). She has worked as outside counsel to public companies engaged in international mineral exploration and mining. She has advised clients with respect to corporate finance activities, mergers and acquisitions, corporate governance and continuous disclosure matters, and mining-related commercial agreements. Ms. McLeod holds a B.Sc. and an LLB from the University of British Columbia, and is a member of the Law Society of British Columbia. Robert Cinits, Vice President, Corporate Development Mr. Cinits has been the Mr. Cinits has extensive experience in project management and development and geological consulting. Prior to joining the Company, Mr. Cinits was the Chief Operating Officer for MinCore Inc., a private, Toronto-based exploration company with projects in Sinaloa, Mexico, from 2007 to 2011. From 2003 through 2006, Mr. Cinits worked for AMEC as the Manager of Geology and Mining for the Lima Peru office. He was involved in numerous feasibility and prefeasibility studies, as well as PEAs, resource estimates and mine and project audits/reviews throughout South America and other locations worldwide. Mr. Cinits has also worked for several consulting groups and junior mining companies since 1985. Mr. Cinits holds a Bachelor of Science degree in Geology from the University of Toronto and is a member of the Association of Professional Engineers and Geoscientists of British Columbia and the Society of Economic Geologists. Family Relationships There are no family relationships between any directors or executive officers of the Company. Arrangements There are no known arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any of the Conflicts of Interest There are no existing or potential conflicts of interest among the Company, its directors, officers or promoters as a result of their outside business interests with the exception that certain of the The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any The majority of the
For the purposes of this Annual Report, "executive officer" of the Company means an individual who at any time during the year was the Chair, or a Vice-Chair or President of the Company; any Vice President in charge of a principal business unit, division or function including sales, finance or production; and any individual who performed a policy-making function in respect of the Company. 116 Set out below are particulars of compensation paid to the following persons (the "Named Executive Officers" or "NEOs"):
As at December 31, Compensation Discussion and Analysis The Compensation Committee of the Board typically meets in the fall of each year to discuss and determine the recommendations that it will make to the Board regarding management compensation. The general objectives of the In the course of its annual management compensation evaluation, the Compensation Committee considers, among such other factors as it may deem relevant, The Compensation Committee generally considers three elements of compensation – a base salary for the next financial year, a discretionary cash bonus to reward superior performance and a grant of long-term incentive stock options. Base salary comprises the portion of executive compensation that is fixed, whereas discretionary cash bonuses and option based compensation represent compensation that is "at risk" depending on whether the executive officer is able to meet or exceed his or her applicable performance expectations, and overall performance of the Company. No specific formula has been developed to assign a specific weighting to each of these components. Rather, the Compensation Committee focuses on ensuring that the total compensation package for each NEO meets the general objectives of the Base salary is used to provide the NEOs a set amount of money during the year with the expectation that each NEO will perform his or her responsibilities to the best of his or her ability and in the best interests of the Company. Generally, the Compensation Committee makes recommendations regarding each 117 The granting of incentive stock options provides a link between management compensation and the Finally, the Compensation Committee will consider whether it is appropriate and in the best interests of the Company to award a discretionary cash bonus to the NEOs and if so, in what amount. A cash bonus may be awarded to reward extraordinary performance that has led to, among other achievements, strategic property acquisitions or divestitures, achieving corporate development or property exploration milestones, and capital raising efforts. Demonstrations of extraordinary personal commitment to the The mineral exploration and development business is extremely competitive, and the Company is dependent on individuals with specialized skills and knowledge related to the exploration for and development of mineral prospects, regulatory matters, corporate finance and management. Therefore, it is important that the Company provide competitive compensation to attract and retain such talent. Since 2011, general economic malaise, An exception to this was the award of discretionary bonuses to management in February 2013. Following the February 2013 closing of the approximately $55 million financing package with Sandstorm, management proposed to the Compensation Committee that discretionary cash bonuses be awarded to management to reward them for corporate goals achieved between January 2011 and March 2013, Management has also annually proposed, and the Compensation Committee has recommended, option grants for directors, officers, employees and consultants of the Company, as a means of rewarding performance without depleting the Company's treasury. In August 2013, the Compensation Committee retained LaneCaputo Compensation Inc. ("LaneCaputo") to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the 118
The Compensation Committee met in December 2013 to consider the findings and recommendations of LaneCaputo. In particular, LaneCaputo did not recommend increasing base salaries for any of the NEOs for 2014. LaneCaputo did however recommend that a bonus pool be established, from which discretionary cash bonuses tied to the achievement of goals for 2014 could be awarded to management. The Board accepted the Compensation In late 2014, the Compensation Committee received a proposal from management with respect to NEO compensation for 2015. Management provided updated data from the peer group that LaneCaputo developed (excluding Lumina Copper Corp. and Oracle Mining Corp.) as well as Nevada Copper Corp., NGEx Resources Inc. and SilverCrest Mines Inc. The Compensation Committee evaluated the performance of the NEOs, taking into account the factors described above. The Compensation Committee accepted In late 2015, the Compensation Committee met to discuss NEO compensation for 2016. The Compensation Committee noted that management was in the process of implementing steps to significantly reduce overhead in 2016, and determined that no salary increases or discretionary cash bonuses for NEOs should be recommended to the Board at this time. The Board can exercise discretion to award compensation absent attainment of corporate goals or to reduce or increase the size of any award. The Board did not exercise this discretion in In the course of conducting its annual review of compensation, the Compensation Committee considers the implications and risks associated with the
119 The Company does not permit its executive officers or directors to hedge any of the equity compensation granted to them. Compensation Governance The Compensation Committee is composed of Mark Bailey (chair), Gord Glenn, James Harris and Alan Edwards, all of whom are independent directors, applying the definition set out in section 1.4 of National Instrument 52-110 – Audit Committees ("NI 52-110") and under Section 803A of the NYSE MKT Company Guide. Each member of the Compensation Committee has served on various other public company boards, which gives them sufficient direct experience in executive compensation to assist them in making decisions about the suitability of the The Board has adopted a Compensation Committee Charter, which governs the organization of the Compensation Committee and sets out the duties and responsibilities of the chair and the Compensation Committee as a whole. The primary objective of the Compensation Committee is to discharge the responsibilities of the Board relating to compensation and benefits of the executive officers and directors of the Company. The Committee shall consist of three or more directors appointed by the Board, each of whom must be independent. The Committee shall meet as many times as it deems necessary, but not less frequently than one time per year. The CEO may not be present during the Compensation Responsibilities of the Compensation Committee include:
The Compensation Committee is acutely aware of the dual responsibility that non-executive directors have for overseeing the The Compensation Committee has the authority to retain outside advisors, including the sole authority to retain or terminate consultants to assist the Compensation Committee in the evaluation of compensation of senior management and directors. In August 2013, the Compensation Committee retained LaneCaputo to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the No 120 Summary Compensation Table The following table is a summary of compensation paid or granted to the NEOs for the last three financial years ending December 31, 2015, 2014
121
The following table provides the exchange rates used to convert the value of the option based awards from Canadian dollars to United States dollars as reported above.
The Company 122 The Company The Company employed Bruce Colwill as its CFO under an employment agreement dated December 20, 2010, as amended. Mr. Colwill The Company The Company employs The Company employs Robert Cinits as Vice President, Corporate Development under an amended and restated employment agreement dated June 26, 2014. Mr. Cinits is required to provide the Company with one month's prior notice in the event he wishes to resign. The Company may terminate his employment without cause by providing him with six months' working notice plus an additional month of working notice for each year of employment completed, to a maximum of twelve months' working notice, or an amount equal to the salary Mr. Cinits otherwise would receive over the working notice period (or a combination thereof). In the event Mr. Cinits' employment is terminated without cause or he resigns for good reason within the one year period following a change of control, Mr. Cinits will be entitled to the Severance Amount. Incentive Plan Awards The following table is a summary of all option-based awards and share-based awards to the NEOs that were outstanding at the end of the most recently completed financial year. 123
The following table is a summary of all value vested or earned during the most recently completed financial year for the NEOs.
125
Termination and Change of Control Benefits Gregory Crowe, Mona Forster, Robert Cann Gregory Mona Forster's employment with the Company was terminated effective November 13, 2015. Ms. Forster received a payment totaling $303,940, equal to 18 months' salary and Robert Cann's employment with the Company was terminated effective December 31, 2015. Mr. Each of the Stephen Scott Mr. Scott would continue to be bound by confidentiality provisions for a period of one year following the termination of his independent contractor agreement. Susan McLeod Under the terms of "Change of Control" is defined as:
126
"Good Reason" is defined as the occurrence of any of the following without the
"Incumbent Director" means any member of the Board who was a member of the Board prior to the occurrence of the transaction, transactions or elections giving rise to a Change of Control and any successor to an Incumbent Director who was recommended or elected or appointed to succeed an Incumbent Director by the affirmative vote of a majority of the Incumbent Directors then on the Board. If a Change of Control had occurred on December 31, Ms. McLeod would continue to be bound by confidentiality provisions (indefinitely) and non-competition and non-solicitation provisions for a period of one year following the termination of employment. Bruce Colwill Under the terms of the employment agreement with Bruce Colwill, which terminated effective March 22, 2016, the Company could have terminated Mr. Colwill's employment at any time without cause by providing him with the Severance Amount. Mr. Colwill would also have been entitled to the Severance Amount if he elected to resign with Good Reason within one year of a Change of Control (in Mr. Colwill's case, the delivery of notice of termination of employment without cause or resignation with Good Reason is a "Severance Payment Triggering Event"). If a Change of Control had occurred on December 31, 2015, Mr. Colwill would not have had an immediate benefit. If a Severance Payment Triggering Event had taken place, Mr. Colwill would have been entitled to a payment of approximately $296,907 within 10 days of the Severance Payment Triggering Event. Mr. Colwill resigned as an employee of the Company effective March 22, 2016. He continues to serve as the Company's CFO under a consulting agreement dated March 23, 2016. The consulting agreement is for a three-month term ending June 22, 2016. Mr. Colwill may terminate the consulting agreement by providing at least 30 days' prior written notice to the Company. The Company may only terminate the consulting agreement prior to the end of the term in the event of a material breach by Mr. Colwill. Mr. Colwill is not entitled to any other termination or change of control benefits under the consulting agreement. Mr. Colwill will continue to be bound by confidentiality provisions (indefinitely) and non-competition and non-solicitation provisions until March 22, 2017. 127 Robert Cinits Under the terms of the employment agreement with Robert Cinits, the Company may terminate Mr. Cinits' employment at any time without cause by providing Mr. Cinits with six months' working notice plus an additional month of working notice for each year of employment completed, to a maximum of twelve months' working notice, or an amount equal to the salary Mr. Cinits otherwise would receive over the working notice period (or a combination thereof). In the event Mr. Cinits' employment is terminated without cause or he resigns for Good Reason within the one year period following a Change of Control, Mr. Cinits will be entitled to the Severance Amount (the delivery of notice of termination of employment without cause or resignation with Good Reason being a "Severance Payment Triggering Event"). If a Change of Control had occurred on December 31, 2015, Mr. Cinits would not have had an immediate benefit. If a Severance Payment Triggering Event had taken place, Mr. Cinits would have been entitled to a payment of approximately $285,681 within 10 days of the Severance Payment Triggering Event. Mr. Cinits would continue to be bound by confidentiality provisions (indefinitely) and non-competition and non-solicitation provisions for a period of one year following the termination of employment. Director Compensation Annual directors' fees are paid to non-executive directors to compensate them for the time and commitment required to act as directors of the Company, serve on standing committees of the Board, serve on ad hoc or special committees of the Board (if so requested by the Board) and act as Chairman of the Board, Deputy Chairman of the Board or chair of certain standing committees. In August 2013, the Compensation Committee retained LaneCaputo to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the In Lord Howard was paid a total of C$ Incentive Stock Options The granting of incentive stock options provides a link between non-executive director compensation and the Stock options are generally awarded to non-executive directors when they join the Board and periodically thereafter. In making a determination as to whether a grant of long-term incentive stock options is appropriate, and if so, the number of options that should be granted, the Compensation Committee will consider: the value in securities of the Company that the Compensation Committee intends to award as compensation; current and expected future performance of the director; the potential dilution to shareholders and the cost to the Company; previous grants made to the director; option grants made to non-executive directors of comparable companies; and the limits imposed by the terms of the Plan and the TSX. 1 Lord Howard's compensation is negotiated and settled in British pounds sterling. The exchange rate used to convert 2015 compensation to C$ is 2.0104. 128 In December The following table is a summary of all compensation provided to the directors of the Company (other than directors who are also NEOs) for the most recently completed financial year.
The following table provides the exchange rates used to convert the value of the option based awards from Canadian dollars to United States dollars as reported above.
The following table is a summary of all option-based awards to the directors of the Company (other than directors who are also NEOs) that were outstanding at the end of the most recently completed financial year. There were no share-based awards outstanding at the end of the most recently completed financial year. 129
The following table is a summary of all value vested or earned during the most recently completed financial year for the directors of the Company (other than directors who are also NEOs).
No options were exercised by directors during the most recently completed financial year. Management Contracts Management functions of the Company are substantially performed by directors or executive officers of the Company and not, to any substantial degree, by any other person with whom the Company has contracted. C.Board Practices The Board is currently comprised of The Board adopted a majority voting policy in May 2013. If the number of shares The Board has considered the relationship of each director to the Company and currently considers Procedures are in place to allow the Board to function independently. At the present time, the Board has experienced directors that have made a significant contribution to the 131 Disclosure of Corporate Governance Practices National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101") requires each reporting issuer to disclose its corporate governance practices on an annual basis. The Board of Directors Section 1.4 of NI 52-110 and NYSE MKT Company Guide Section 803A set out the standard for director independence. Under Section 1.4 of NI 52-110 and NYSE MKT Company Guide Section 803A, a director is independent if he has no direct or indirect material relationship with the Company. A material relationship is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a As at December 31, independent. To the extent that the Board considers it to be necessary or advisable, a Board meeting will include an in camera session, at which non-independent directors and members of management are not in attendance. Since the beginning of the Lord Howard, an independent director, serves as non-executive Chairman of the Board, and is responsible for ensuring that the Board discharges its responsibilities in an effective manner and that the Board understands the boundaries between Board and management responsibilities. The Board has developed a written position description for the Chairman in order to delineate the
Position Description for CEO The Board has adopted a written position description for the CEO, which sets out his specific duties and responsibilities. Generally, the CEO, who must be appointed by the Board and is directly accountable to the Board, is responsible for management of the day to day operation of the business of the Company and has primary accountability for the profitability and growth of the Company. Directors The Orientation and Continuing Education Board turnover is relatively rare. As a result, the Board provides ad hoc orientation for new directors. 132 The CGNC is responsible for encouraging and facilitating continuing education programs for all directors. The CGNC will also ensure that each director understands the role of the Board, its committees and its directors, and the basic procedures and operations of the Board. Board members are also given access to management and other employees and advisors, who can answer any questions that may arise. Ethical Business Conduct The Board has adopted a written Code of Business Conduct and Ethics (the "Code") for its directors, officers, employees and consultants, a copy of which may be obtained on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The CGNC is responsible for assisting the Board in dealing with conflict of interest issues as contemplated by the Code, reviewing and updating the Code periodically, ensuring that management has established a system to enforce the Code and reviewing Under the Code, members of the Board are required to disclose any conflict of interest or potential conflict of interest to the entire Board as well as any committee on which they serve. Directors are to excuse themselves from participation in any decision of the Board or a committee thereof in any matter in which there is a conflict of interest or potential conflict of interest. However, if the Board determines that a potential conflict of interest cannot be cured, the individual will be asked to resign from their position with the Company. Directors are also required to comply with the relevant provisions of the BCBCA regarding conflicts of interest. The Board is also committed to best practices in making timely and accurate disclosure of all material information and providing fair and equal access to material information. The Board has adopted a written Corporate Disclosure and Trading Policy to ensure that the Company and its directors, officers, employees and consultants satisfy the legal and ethical obligations related to the proper and effective disclosure of corporate information and the trading of securities with that information. Standing Committees The Board has four standing committees, namely the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee and the Technical Committee. Their mandates and memberships are outlined below. Audit Committee The Audit Committee meets with the CEO and CFO of the Company and the independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls and procedures and the audit procedures and audit plans. The Audit Committee also recommends to the Board the auditors to be appointed, subject to shareholder approval. In addition, the Audit Committee reviews and recommends to the Board for approval the annual financial statements, the annual report and certain other documents required by regulatory authorities. The Audit Committee is composed of Gorden Glenn The Board has adopted a written position description for the chair of the Audit Committee. The chair is generally responsible for overseeing the Audit Committee in its responsibilities as outlined in the Audit Committee Charter. The The 133 Compensation Committee The primary objective of the Compensation Committee is to discharge the responsibilities of the Board relating to compensation and benefits of the executive officers and directors of the Company. The Board has adopted a written position description for the chair of the Compensation Committee. The chair is generally responsible for overseeing the Compensation Committee in its responsibilities. The The Compensation Committee is comprised of four directors, each of whom, in the judgement of the Board, meets the independence requirements of Corporate Governance and Nominating Committee The members of the CGNC are: James Harris Anna Stylianides. The primary objective of the CGNC is to assist the Board in fulfilling its oversight responsibilities by: (a) developing and recommending to the Board corporate governance guidelines for the Company and making recommendations to the Board with respect to corporate governance guidelines; (b) reviewing the performance of the Board, Board members, Board committees and management; and (c) identifying individuals qualified to become Board and Board committee members and recommending such nominees to the Board for election or appointment. Pursuant to the written CGNC Charter, all members must have a working familiarity with corporate governance practices. The CGNC may form and delegate authority to subcommittees when appropriate, and must meet not less frequently than one time per year. The Board has adopted a written position description for the chair of the CGNC. The chair is generally responsible for overseeing the CGNC in its responsibilities. The Nomination of Directors The CGNC examines the size and composition of the Board, taking into consideration the benefits of all aspects of diversity, and recommends adjustments from time to time to ensure that the Board is of a size and composition that facilitates effective decision making. It also identifies and assesses the necessary and desirable competencies and characteristics for Board membership and regularly assesses the extent to which those competencies and characteristics are represented on the Board. The CGNC identifies individuals qualified to become members of the Board, having due regard for the benefits of Board diversity and the Company's Board Diversity Policy, actively seeks out such individuals when there is a vacancy or when so directed by the Board, and makes recommendations to the Board for the appointment or election of director nominees and for membership on other committees of the Assessments The CGNC regularly reviews the time required from non-executive directors to perform their functions and assesses whether they are satisfying those time requirements. It receives comments from all directors as to the Technical Committee The members of the Technical Committee consist of Alan Edwards 134 The primary objective of the Technical Committee is to review and make recommendations to the Board regarding the approval of budgets, exploration programs and other activities related to the The Board has adopted a written position description for the chair of the Technical Committee, who should be independent. The chair is generally responsible for overseeing the Technical Committee in its responsibilities. The
At December 31, Mongolia. In the United States,
The table below sets out the municipality of residence and securities held by directors and executive officers as at March 30, 2016.
To the best of the Common Shares. Securities Authorized for Issuance under Equity Compensation Plans The following table sets out information as of the end of the
136 Item 7. Major Shareholders and Related Party Transactions
As far as it is known to the Company, other than identified below, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person. To the knowledge of the
Changes in ownership by major shareholders To the best of the In the year ended December 31, 2015, Caisse de depot et placement du Quebec sold 150,000 Common Shares of the Company, decreasing its ownership from 12,531,400 to 12,381,400 Common Shares of the Company. On March 1, 2016, the Company issued 5,128,604 Common Shares to Sandstorm at a price of C$0.3496 per share pursuant to the Agreement to Amend. The price was calculated using the volume weighted average price of the Company's Common Shares on the TSX for the 15 trading days preceding February 23, 2016, the effective date of the Agreement to Amend. Following closing, Sandstorm holds 22,985,746 Common Shares, or 15.1% of the outstanding Common Shares of the Company. Voting Rights The Shares Held in the United States As of March 30, 22,209,378 Common Shares. Change of Control As of the date of this Annual Report, there were no arrangements known to the Company which may, at a subsequent date, result in a change of control of the Company. 137 Control by Others To the best of the
During the three-year period ended December 31, The Company did not enter into any transactions with related parties during the year ended December 31, 2015. The Company did not enter into any transactions with related parties during the year ended December 31, 2014. During the year ended December 31, 2013, the Company paid consulting fees of $1,167 (December 31, 2012 - $Nil) to an immediate family member of the On February 23, 2016, the Company and Sandstorm entered into an Agreement to Amend, which provides for a 17% reduction in the metal credits that the Company is required to sell and deliver to Sandstorm under the 2013 Agreement. In return, the Company refunded 17% of the Deposit by paying $5.5 million in cash and issuing $1.3 million of Common Shares (thereby reducing the Deposit to $33.2 million). At closing, the parties entered into the Amended Funding Agreement. See "Item 4B. – Business Overview – Agreements with Sandstorm". The transaction closed on March 1, 2016. Pursuant to the Agreement to Amend, the Company Sandstorm is an informed person and a related party as that term is defined in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101") by virtue of the fact that Sandstorm beneficially owns Common Shares of the Company carrying more than 10% of the voting rights attached to all of the Company's outstanding Common Shares. The Company relied on exemptions from the formal valuation and minority approval requirements set out in MI 61-101 based on a determination that neither the fair market value of the partial refund or the amendments (including, without limitation, the reduction in deliverable metal credits), exceeds 25% of the Company's market capitalization. The Agreement to Amend was approved by the Board, which is entirely comprised of independent directors, with one director dissenting.
Not Applicable. Item 8. Financial Information
The following financial statements of the Company are attached to this Annual Report:
138
Legal Proceedings None. Dividend Policy The Company has not declared any dividends on its
None. Item 9. The Offer and Listing
The The following table sets forth the high and low prices expressed in Canadian dollars on the TSX and in United States dollars on NYSE MKT in the United States for the
The closing price of the $0.2359. The Company's Common Shares. On December 31, The Company has no outstanding securities not listed on a marketplace other than incentive stock options. Since the beginning of the most recently completed financial year, stock options to purchase an aggregate
Not Applicable.
The
Not Applicable.
Not Applicable.
Not Applicable. Item 10. Additional Information
Not Applicable.
The Company is continued under the laws of British Columbia and is governed by the BCBCA. The Notice of Articles and Articles of the Company (together, the "Articles") do not address the The Company is authorized to issue an unlimited number of A director or senior officer who has, directly or indirectly, a material interest in an existing or proposed material contract or transaction of the Company may not vote in respect of any such proposed material contract or transaction. The directors may from time to time in their discretion authorize and cause the Company to:
There are no age considerations pertaining to the retirement or non-retirement of directors. A director is not required to hold a share in the capital of the Company as qualification for his office but shall be qualified as required by the BCBCA, to become or act as a director. A director may hold any office or appointment with the Company (except as auditor of the Company) in conjunction with his office of director for such period and on such terms (as to remuneration or otherwise) as the Board may determine. The Company must reimburse each director for the reasonable expenses that he may incur in and about the business of the Company. If a director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Subject to the provisions of the BCBCA, the Company may indemnify any person. The Company must, subject to the provisions of the BCBCA, indemnify a director, officer or alternate director or a former director, officer or alternate director of the Company or a person who, at the request of the Company, is or was a director, alternate director or officer of another corporation, at a time when the corporation is or was an affiliate of the Company or a person who, at the request of the Company, is or was, or holds or held a position equivalent to that of, a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity (in each case, an "eligible party"), and the heirs and personal representatives of any such eligible party, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action (whether current, threatened, pending or completed) in which such eligible party or any of the heirs and personal representatives of such eligible party, by reason of such eligible party being or having been a director, alternate director or officer or holding or having held a position equivalent to that of a director, alternate director or officer, is or may be joined as a party or is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to the proceeding. All of the authorized Upon liquidation, dissolution or winding up of the Company, holders of Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the BCBCA and the Articles. Unless the BCBCA or the Company's Articles otherwise provide, any action to be taken by a resolution of the shareholders may be taken by an ordinary resolution or by a vote of a majority or more of the shares represented at the shareholders' meeting. The BCBCA contains provisions which require a "special resolution" for effecting certain corporate actions. Such a "special resolution" requires a two-thirds vote of shareholders rather than a simple majority for passage. The principle corporate actions that require a "special resolution" include:
There are no restrictions on the repurchase or redemption of There is no liability to further capital calls by the Company. There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of Common Shares. No right or special right attached to issued shares may be prejudiced or interfered with unless the shareholders holding shares of the class or series of shares to which the right or special right is attached consent by a separate special resolution of those shareholders. There are no limitations on the rights to own securities. There is no provision of the Shareholder ownership must be disclosed to Canadian securities administrators and the TSX by any shareholder who owns more than 10% of the Common Shares.
The Company has the following material contracts:
See "Item 4. Information on the Company – B. Business Overview – Agreements with Sandstorm – Amended and Restated Equity Participation and Funding Agreement" above.
Pursuant to Earn-In Agreement, a joint venture was formed on June 30, 2008 and the parties were required to enter into a joint venture agreement in the form attached to the Earn-In Agreement as Appendix A (the "Joint Venture Agreement"). The Joint Venture Agreement contains provisions governing the parties' activities on the Entrée/Oyu Tolgoi JV Property, including exploration, acquisition of additional real property and other interests, evaluation of, and if justified, engaging in development and other operations, engaging in marketing products, and completing and satisfying all environmental compliance and other continuing obligations affecting the Entrée/Oyu Tolgoi JV Property.
Under the Earn-In Agreement, OTLLC earned a 70% interest in mineralization above a depth of 560 metres on the Entrée/Oyu Tolgoi JV Property, and an 80% interest in mineralization below that depth, by spending an aggregate $35 million on exploration. OTLLC completed its earn-in on June 30, 2008, at which time a joint venture was formed under the terms of the Joint Venture Agreement. The Joint Venture Agreement was intended to replace the Earn-In Agreement, with the Earn-In Agreement terminating, except for certain provisions that expressly survive the termination. Those parts include provisions related to the Joint Venture Agreement, title, tenure and related matters and arbitration.
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of the Company by a "non-Canadian". The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian" generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
Canadian Federal Income Tax Consequences The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. A Provided that the Act. U.S. Holders who may hold Certain United States Federal Income Tax Consequences The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of Common Shares. No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Scope of this Summary Authorities This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Canada-U.S. Tax Convention, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis. U.S. Holders For purposes of this summary, the term "U.S. Holder" means a beneficial owner of
Non-U.S. Holders For purposes of this summary, a "non-U.S. Holder" is a beneficial owner of U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a "functional currency" other than the U.S. dollar; (e) own Common Shares. If an entity or arrangement that is classified as a partnership (or "pass-through" entity) for U.S. federal income tax purposes holds Common Shares. Passive Foreign Investment Company Rules If the Company were to constitute a "passive foreign investment company" under the meaning of Section 1297 of the Code, or a "PFIC", as defined below, for any year during a U.S. PFIC Status of the Company The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the "income test"), or (b) 50% or more of the value of the Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, "passive income" does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain "related persons" (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income. In addition, under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of the stock of any subsidiary of the Company that is also a PFIC, or a "Subsidiary PFIC", and will be subject to U.S. federal income tax on their proportionate share of, (a) a distribution on the stock of a Subsidiary PFIC, and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. The Company believes that it was classified as a PFIC during the tax year ended December 31, Default PFIC Rules Under Section 1291 of the Code If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to, (a) any gain recognized on the sale or other taxable disposition of Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds QEF Election A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally, (a) may receive a tax-free distribution from the Company to the extent that such distribution represents "earnings and profits" of the Company that were previously included in income by the U.S. Holder because of such QEF Election, and (b) will adjust such U.S. 147 The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as "timely" if such QEF Election is made for the first year in the U.S. A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC. U.S. Holders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in event that the Company is a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return. However, if the Company does not provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions. Mark-to-Market Election A U.S. Holder may make a Mark-to-Market Election only if the A U.S. Holder that makes a Mark-to-Market Election with respect to its Common Shares. A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (i) the fair market value of our A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless our Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to our Other PFIC Rules Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares. Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC. The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. Ownership and Disposition of Common Shares The following discussion is subject to the rules described above under the heading "Passive Foreign Investment Company Rules". Distributions on Common Shares Subject to the PFIC rules discussed above, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to our Sale or Other Taxable Disposition of Common Shares Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of Preferential tax rates apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code. Additional Considerations Additional Tax on Passive Income Certain U.S. Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their "net investment income", which includes dividends on the Treasury Regulations provide, subject to the election described in the following paragraph, that solely for purposes of this additional tax, that distributions of previously taxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally, to determine the amount of any capital gain from the sale or other taxable disposition of Alternatively, a U.S. Holder may make an election which will be effective with respect to all interests in a PFIC for which a QEF Election has been made and which is held in that year or acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions and on gains calculated after giving effect to related tax basis adjustments. U.S. Holders that are individuals, estates or trusts should consult their own tax advisors regarding the applicability of this tax to any of their income or gains in respect of the Receipt of Foreign Currency The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Foreign Tax Credit Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Backup Withholding and Information Reporting Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
Not Applicable.
Not Applicable. 151
We are subject to the informational requirements of the U.S. Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") (www.sedar.com), the Canadian equivalent of the SEC's electronic document gathering and retrieval system. We "incorporate by reference" information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this Annual Report. As a foreign private issuer, we are exempt from the rules under the U.S. Exchange Act prescribing the furnishing and content of proxy statements to shareholders. We will provide without charge to each person, including any beneficial owner, to whom a copy of this Annual Report has been delivered, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this Annual Report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: Suite 1201 - 1166 Alberni Street, Vancouver, British Columbia, Canada V6E
Not Applicable. Item 11. Quantitative and Qualitative Disclosures about Market Risk Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, and accounts receivable. The Company deposits the majority of its cash and cash equivalents with high credit quality financial institutions in Canada, Australia and the United States and holds limited balances in banks in Mongolia, Peru, China and Barbados as required to meet current expenditures. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the The carrying amount of accounts receivable, accounts payable and accrued liabilities and due to and from related parties approximates fair value due to the short term of these financial instruments. The Company operates in a number of countries, including Canada, the United States, Mongolia and Australia, and it is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency. The The Company was exposed to foreign exchange gains and losses on the following balances, as at December 31, 2014: 152
Based on the above net exposures as at December 31, Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Based on the amount of cash and cash equivalents invested at December 31, Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows required by operations and anticipated investing and financing activities. The Company had cash at December 31, Item 12. Description of Securities Other than Equity Securities A. – C. Not Applicable. 153 D.American Depository Receipts The Company does not have securities registered as American Depository Receipts. PART II. Item 13. Defaults, Dividend Arrearages and Delinquencies None. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds A.-D. None. E.Use of Proceeds Not Applicable. Item 15. Controls and Procedures
An evaluation was performed under the supervision and with the participation of the
The Because of their inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The 154
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Based upon their evaluation of our controls, our CEO and CFO have concluded that there were no significant changes in our internal control over financial reporting or in other factors during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 16. [Reserved] Item 16A. Audit Committee Financial Expert The Item 16B. Code of Ethics The Company is committed to the highest standards of legal and ethical business conduct. The Company has the Code, which applies to all of its directors, officers and employees, including the CEO and CFO. This Code summarizes the legal, ethical and regulatory standards that the Company must follow and serves as a reminder to the directors, officers and employees of the seriousness of that commitment. Compliance with this Code and high standards of business conduct is mandatory for every director, officer and employee of the Company. The Code meets the requirements for a "code of ethics" within the meaning of that term in Form 20-F. A copy of the Code in full text is available on the During the fiscal year ended December 31, Item 16C. Principal Accountant Fees and Services The following table shows the aggregate fees billed to the Company by Davidson & Company LLP and its affiliates, Chartered Accountants, the
155
Pre-Approval of Audit and Non-Audit Services Provided by Independent Auditors The Audit Committee pre-approves all audit and non-audit services to be provided to the Company by its independent 2015 comprised surplus calculations for one of the Company's Mongolian subsidiaries.Item 16D. Exemptions from the Listing Standards for Audit Committees None. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 16F. Changes in None. Item 16G. Corporate Governance The In addition, the Company may from time-to-time seek relief from NYSE MKT corporate governance requirements on specific transactions under Section 110 of the NYSE MKT Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by our home country law, in which case, the Company shall make the disclosure of such transactions available on its website at www.entreegold.com and/or in its Annual Report. Information contained on the A description of the significant ways in which the Shareholder Meeting Quorum Requirement: The NYSE MKT minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of common stock. In addition, a company listed on the NYSE MKT is required to state its quorum requirement in its bylaws. The Proxy Delivery Requirement: The NYSE MKT requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a "foreign private issuer" as defined in Rule 3b-4 under the U.S. Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the U.S. Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada. Shareholder Approval of Certain Transactions: The NYSE MKT Company Guide requires shareholder approval in connection with the establishment of an equity compensation arrangement pursuant to which options or stock may be acquired by officers, directors, employees, or consultants of a company. The Company will follow the shareholder approval requirements of the TSX in connection with the establishment of equity compensation arrangements pursuant to which its officers, directors, employees, or consultants may acquire options or 156 Compensation Committee Requirements: The NYSE MKT Company Guide requires that additional independence criteria be applied to each member of the Compensation Committee. The NYSE MKT Company Guide also mandates that the Compensation Committee must have the authority to hire compensation consultants, independent legal counsel and other compensation advisors and exercise the sole responsibility to oversee the work of any compensation advisors retained to advise the Compensation Committee. In addition, before engaging a compensation advisor, the Compensation Committee must consider at least six factors that could potentially impact compensation advisor independence. The Company follows CSA and TSX requirements for Compensation Committee charters, independence and authority. The Compensation The foregoing are consistent with the laws, customs and practices in Canada. Item 16H. Mine Safety Disclosure. Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). During the year ended December 31, PART III. Item 17. Financial Statements See "Item 18 – Financial Statements". Item 18. Financial Statements The The following financial statements pertaining to the Company are filed as part of this Annual Report:
ENTRÉE GOLD INC. CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States dollars) December 31, 2015 To the Shareholders and Directors of Entrée Gold Inc. We have audited the accompanying consolidated financial statements of Entrée Gold Inc. (the We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Entrée Gold Inc. as of December 31, "DAVIDSON & COMPANY LLP"
Nature and continuance of operations (Note 1) Commitments and Contingencies (Note 16) Subsequent events (Note 18) The accompanying notes are an integral part of these consolidated financial statements. 160
The accompanying notes are an integral part of these consolidated financial statements. 161
The accompanying notes are an integral part of these consolidated financial statements
Supplemental disclosure with respect to cash flows (Note 15) The accompanying notes are an integral part of these consolidated financial statements. ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, (Expressed in United States dollars) 1. NATURE AND CONTINUANCE OF OPERATIONS Entrée Gold Inc. was incorporated under the laws of the Province of British Columbia on July 19, 1995 and continued under the laws of the Yukon Territory on January 22, 2003. On May 27, 2005, Entrée Gold Inc. changed its governing jurisdiction from the Yukon Territory to British Columbia by continuing into British Columbia under the Business Corporations Act (British Columbia). The principal business activity of Entrée Gold Inc., together with its subsidiaries (collectively referred to as the All amounts are expressed in United States dollars, except for certain amounts denoted in Canadian dollars ("C$ These consolidated financial statements have been prepared on the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company currently earns no operating revenues. Continued operations of the Company are dependent upon the 2. SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation These consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") in the United States of America and include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation. Use of estimates The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuations, asset impairment, stock-based compensation Cash and cash equivalents Cash and cash equivalents includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, (Expressed in United States dollars) 2. SIGNIFICANT ACCOUNTING POLICIES Long-term investments Long-term investments in companies in which the Company has voting interests of 20% to 50% or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Equipment Equipment, consisting of office, computer, field equipment and buildings, is recorded at cost less accumulated depreciation. Depreciation is recorded on a declining balance basis at rates ranging from 20% to 30% per annum. Mineral property interests Costs of exploration and costs of carrying and retaining unproven properties are expensed as incurred. The Company considers mineral rights to be tangible assets and accordingly, the Company capitalizes certain costs related to the acquisition of mineral rights. Asset retirement obligation The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets where the initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any asset retirement obligations. Impairment of long-lived assets Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the discounted carrying amount of the assets exceeds the fair value of the assets. Stock-based compensation The Company applies the fair value method of accounting for all stock option awards, whereby the Company recognizes a compensation expense for all stock options awarded to employees, officers and consultants based on the fair value of the options on the date of grant, which is determined using the Black Scholes option pricing model. The options are expensed over the vesting period of the options. Financial instruments The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the 165 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd…) Financial instruments (cont'd…) Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income. The Company classifies its financial instruments as follows: Cash and cash equivalents is classified as held for trading, and is measured at fair value using Level 1 inputs. Receivables and accounts payable, Income taxes The Company follows the asset and liability method of accounting for income taxes whereby deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period in which the change occurs. The amount of deferred income tax assets recognized is limited to the amount that is more likely than not to be realized. Foreign currency translation The functional currency of Entrée Gold Inc. is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss. The functional currency of Entrée Gold Inc. The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of 166 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd…) Net loss per share Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At December 31, Comparative figures Certain comparative figures have been reclassified to conform Recent accounting pronouncements In In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes". The amendments in ASU 2015-17 require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this ASU are effective for financial statements issued for annual periods beginning after December 3. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash at bank and in hand of 4. LONG-TERM INVESTMENTS Equity Method Investment The Company accounts for its interest in a joint venture with Oyu Tolgoi LLC 167 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, (Expressed in United States dollars) 5.EQUIPMENT
6. MINERAL PROPERTY INTERESTS Title to mineral property interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral property interests. The Company has investigated title to its mineral property interests and, except as otherwise disclosed below, to the best of its knowledge, title to the mineral property interests is in good standing. Material Properties The Ann Mason, Nevada, United States The Ann Mason Project is defined by a series of both unpatented lode claims on public land administered by the Bureau of Land Management, and title to patented lode claims. The project area includes the Ann Mason and the Blue Hill deposits, several early-stage copper porphyry targets including the Blackjack IP, Blackjack Oxide, Roulette and Minnesota targets, and the Minnesota, Shamrock and Ann South copper skarn targets. Certain of the unpatented lode claims are leased to the Company pursuant to a mining lease and option to purchase agreement ("MLOPA") with two individuals. Under the MLOPA, the Company has the option to purchase the claims for $500,000, which, if exercised, will be subject to a 3% net smelter returns ("NSR") royalty (which may be bought down to a 1% NSR royalty for $2 million). The MLOPA also provides for annual advance minimum royalty payments of $27,500 which commenced in 2011 and will continue until the commencement of sustained commercial production. The advance payments will be credited against future royalty payments or the buy down of the royalty. In September 2009, the Company entered into an agreement whereby the Company may acquire an 80% interest in certain unpatented lode claims formerly known as the Roulette property. In order to acquire its interest, the Company must: (a) incur expenditures of $1,000,000, make cash payments of $140,000 and issue 85,000 common shares of the Company within three years (completed); (b) make aggregate advance royalty payments totalling $375,000 between the fifth and tenth anniversaries of the agreement ($ 168 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 6. MINERAL PROPERTY INTERESTS (cont'd...) Material Properties (cont'd...) Ann Mason, Nevada, United States (cont'd...) In February 2013, the Company entered into an agreement with Sandstorm Gold Ltd. ("Sandstorm") whereby the Company granted Sandstorm a 0.4% NSR royalty over certain of the unpatented lode claims, including the claims covering the Ann Mason and Blue Hill deposits, in return for an upfront payment of $5 million (the "Sandstorm NSR Payment") which was recorded as a recovery to acquisition costs. In addition, certain of the patented lode claims are subject to a 2% NSR royalty. Lookout Hill, Mongolia The Lookout Hill property in the South Gobi region of Mongolia is comprised of two mining licences, Shivee Tolgoi and Javhlant, granted by the Mineral Resources Authority of Mongolia ("MRAM") in October 2009. Title to the two licences is held by the Company. In October 2004, the Company entered into an On June 30, 2008, OTLLC gave notice that it had completed its earn-in obligations by expending a total of $35 million on exploration of the Joint Venture Property. OTLLC earned an 80% interest in all minerals extracted below a sub-surface depth of 560 metres from the Joint Venture Property and a 70% interest in all minerals extracted from surface to a depth of 560 metres from the Joint Venture Property. In accordance with the Earn-In Agreement, the Company and OTLLC formed a joint venture (the "Entrée-OTLLC Joint Venture") on terms annexed to the Earn-In Agreement. The portion of the Shivee Tolgoi mining licence outside of the Joint Venture Property ("Shivee West") is 100% owned by the Company, but is subject to a right of first refusal by OTLLC. The conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent to the Investment Agreement (the "Investment Agreement") between Turquoise Hill, OTLLC, the Government of Mongolia and Rio Tinto International Holdings Limited. The licences are part of the contract area covered by the Investment Agreement, although the Company is not a party to the Investment Agreement. The Shivee Tolgoi and Javhlant mining licences were each issued for a 30 year term and have rights of renewal for two further 20 year terms. On February 27, 2013, MRAM delivered notice (the "Notice") As of December 31, 169 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 6. MINERAL PROPERTY INTERESTS (cont'd...) Other Properties The Company also has interests in non-material properties in Australia, the United States and Peru. During the year ended December 31, 2014, the Company recorded an impairment of mineral property interests of $552,095 (December 31, 2013 - Capitalized mineral property acquisition costs are summarized as follows:
Ann Mason capitalized mineral property acquisition costs are net of the $5 million Sandstorm NSR Payment. Expensed exploration costs are summarized as follows:
7. LOANS PAYABLE Under the terms of the Entrée-OTLLC Joint Venture (Note 6), OTLLC will contribute funds to approved joint venture programs and budgets on the 170 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 8. In February 2013, the Company entered into an equity participation and funding agreement with Sandstorm (the "2013 Agreement") that provided an upfront deposit (the "Deposit") from Sandstorm of $40 million. The Company will use future payments that it receives from its mineral property interests to purchase and deliver metal credits to Sandstorm, in amounts that are indexed to the
In addition to the Deposit, upon delivery of the metal credits Sandstorm will make a cash payment to the Company equal to the lesser of the prevailing market price and $220 per ounce of gold, $5 per ounce of silver and $0.50 per pound of copper (subject to inflation adjustments). After approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the entire Joint Venture Property, the cash payment will increase to the lesser of the prevailing market price and $500 per ounce of gold, $10 per ounce of silver and $1.10 per pound of copper (subject to inflation adjustments). To the extent that the prevailing market price is greater than the amount of the cash payment, the difference between the two will be credited against the Deposit (the net amount of the Deposit being the "Unearned Balance"). The Company is not required to deliver actual metal, and the Company may use revenue from any of its assets to purchase the requisite amount of metal credits. The Company recorded the Deposit as deferred revenue and will recognize amounts in revenue as metal credits are delivered to 9. COMMON STOCK Share issuances In March 2013, the Company completed a private placement with Sandstorm consisting of 17,857,142 common shares issued at a price of C$0.56 per share for gross proceeds of $9,722,897. Related share issuance costs were $86,636. In May 2014, the Company issued 250,000 shares at a fair value of $73,618 to acquire certain claims within the boundaries of its Ann Mason Project. During the year ended December 31, 2015, the Company issued 346,532 common shares for cash proceeds of $41,135 on the exercise of stock options. The fair value recorded when the options were granted of $26,532 has been transferred from additional paid-in capital to common stock on the exercise of the options. ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, (Expressed in United States dollars) 9. COMMON STOCK Stock options The Company has adopted a stock option plan (the "Plan") to grant options to directors, officers, employees and consultants. Under the Plan, the Company may grant options to acquire up to 10% of the issued and outstanding shares of the Company. Options granted can have a term of up to ten years and an exercise price typically not less than the Company's closing stock price on the Toronto Stock Exchange on the last trading day before the date of grant. Vesting is determined at the discretion of the Board of Directors. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. For employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for stock options granted to non-employees is recognized over the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model. The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. Companies are required to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of Nil in determining the expense recorded in the accompanying Statements of Operations and Comprehensive Loss. Stock option transactions are summarized as follows:
172 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 9. COMMON STOCK (cont'd...) Stock options (cont'd...) The number of stock options exercisable at December 31, At December 31,
The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Subsequent to December 31, 2015, 25,000 stock options with an exercise price of C$0.30 and 35,000 stock options with an exercise price of C$0.21 were exercised. 200,000 stock options with an exercise price of C$3.47 and 125,000 stock options with an exercise price of C$2.94 expired. 137,500 stock options with an exercise price of C$1.25, 410,000 stock options with an exercise price of C$0.56, 165,000 stock options with an exercise price of C$0.30 and 30,000 stock options with an exercise price of C$0.21 were forfeited. 173 ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 9. COMMON STOCK (cont'd...) Stock-based compensation
The following weighted-average assumptions were used for the Black-Scholes valuation of stock options granted:
ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2015 (Expressed in United States dollars) 10. SEGMENT INFORMATION The Company operates in one business segment being the exploration of mineral property interests. Geographic information is as follows:
11. INCOME TAXES A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, (Expressed in United States dollars) 11. INCOME TAXES The significant components of the
The Company has available for deduction against future taxable income non-capital losses of approximately The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of December 31, The Company files income tax returns in Canada and several foreign jurisdictions. The ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, (Expressed in United States dollars) 12. FAIR VALUE ACCOUNTING Fair value measurement is based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value which are: Level 1 — Quoted prices that are available in active markets for identical assets or liabilities. Level 2 — Quoted prices in active markets for similar assets that are observable. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. At December 31, 13. DISCLOSURES REGARDING FINANCIAL INSTRUMENTS The Company's financial instruments generally consist of cash and cash equivalents, receivables, deposits, accounts payable and accrued liabilities and loans payable. It is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values. The Company is exposed to currency risk by incurring certain expenditures in currencies other than the Canadian dollar. In addition, as certain of the 14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ENTRÉE GOLD INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, (Expressed in United States dollars)
There were no significant non-cash transactions during the year ended December 31, 2015. The significant non-cash 16. COMMITMENTS AND CONTINGENCIES The Company is committed to make lease payments for the rental of office space as follows:
The Company incurred lease expense of In the event of a partial expropriation of the On February 23, 2016, the Company and Sandstorm entered into an Agreement to Amend the 2013 Agreement (Note 18, Subsequent Events) which decreased the amount of Deposit that the Company would need to return in certain circumstances.17. TRANSACTIONS WITH RELATED PARTIES The Company did not enter into any transactions with related parties during the year ended December 31, 2015 and 2014. During the year ended December 31, 2013, the Company paid consulting fees of $1,167 18. SUBSEQUENT EVENTS On February 23, 2016, the Company and Sandstorm entered into an Agreement to Amend, which provides for a 17% reduction in the metal credits that the Company is required to sell and deliver to Sandstorm under the 2013 Agreement. In return, the Company refunded 17% of the Deposit by paying $5.5 million in cash and issuing $1.3 million of common shares (thereby reducing the Deposit to $33.2 million). The Agreement to Amend further provided that in the event the Company's economic interest in the Joint Venture Property is reduced by up to 34%, the additional 17% refund of the Deposit is not required to be made in cash. At closing, the parties entered into an Amended and Restated Equity Participation and Funding Agreement dated February 14, 2013, and amended March 1, 2016. On March 1, 2016, the Company issued 5,128,604 common shares to Sandstorm at a price of C$0.3496 per common share pursuant to the Agreement to Amend. Item 19. Exhibits
SIGNATURES The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sight this
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