Mr. David Jan reports
ENTREE RESOURCES ANNOUNCES THIRD QUARTER 2020 RESULTS
Entree Resources Ltd. has filed its interim financial results for the third quarter ended Sept. 30, 2020. All numbers are in United States dollars unless otherwise noted.
Q3 2020 highlights
Oyu Tolgoi underground development update -- Mongolia
The Oyu Tolgoi project in Mongolia includes two separate landholdings -- the Oyu Tolgoi mining licence, which is held by Entree's joint venture (JV) partner, Oyu Tolgoi LLC (OTLLC), and the Entree/Oyu Tolgoi JV property, which is a partnership between Entree and OTLLC. On Oct. 15, 2020, OTLLC's 66-per-cent shareholder, Turquoise Hill Resources Ltd., provided an update on underground development:
Work on the Oyu Tolgoi underground project has continued to progress despite COVID-19 controls and continuing international travel restrictions issued by the government of Mongolia. Forty of OTLLC's expatriates were able to return to Mongolia in July. Further flights are planned in order to return the required specialists to site.
- Care and maintenance activities continue at shafts 3 and 4 but some commissioning activities have advanced in preparation for shaft sinking, including rope installation and no-load testing of the shaft 4 hoisting system. Further substantial progress will require the remobilization of international shaft-sinking specialists and, subject to local border restrictions, preparation is under way by OTLLC to mobilize these contractors before the end of the fourth quarter of 2020. Shafts 3 and 4 will provide ventilation to support the continuing development associated with production ramp-up for panels 1 and 2. OTLLC and Rio Tinto International Holdings Ltd. continue to review the impacts of the shaft 3 and 4 delays.
- Overall, underground development on the Oyu Tolgoi mining licence has now reached 48,604 equivalent metres.
- All surface infrastructure required for first sustainable production from panel 0 on the Oyu Tolgoi mining licence is complete and OTLLC is focused on the safe and efficient delivery of the critical underground material handling system 1 (MHS1). The balance of project infrastructure to be delivered after the completion of MHS1 is not needed for first sustainable production from panel 0. However, it is needed to support the production ramp-up profile and the life-of-mine material handling infrastructure capacity.
- On July 2, 2020, Turquoise Hill announced the completion of an updated Oyu Tolgoi feasibility study (OTFS20) that incorporates the new mine design for the first lift (lift 1) of Hugo North panel 0 announced by Turquoise Hill on May 13, 2020. The lift 1 mine plan incorporates the development of three panels and in order to reach the full sustainable production rate of 95,000 tonnes per day from the underground operations; all three panels need to be in production. On Aug. 28, 2020, Turquoise Hill announced that it had filed an updated technical report for the Oyu Tolgoi project (2020 OTTR). OTFS20 and the 2020 OTTR do not reflect the impacts of the COVID-19 pandemic, which continue to be assessed by OTLLC, Rio Tinto and Turquoise Hill.
- OTFS20 and the 2020 OTTR incorporate an update to the first sustainable production schedule and capital cost estimates for the underground mine development based on the new block cave mine design for panel 0. The new design anticipates a base-case development capital cost of $6.8-billion, with a range of $6.6-billion to $7.1-billion and a target to first sustainable production from the Oyu Tolgoi mining licence of February, 2023, with a target range between October, 2022, and June, 2023, inclusive of an allowance for schedule contingency. The mine design for panel 0 is now undergoing detailed study, design, engineering and optimization work to support the definitive estimate cost and schedule update for panel 0, expected to be completed by OTLLC, Rio Tinto and Turquoise Hill in the fourth quarter of 2020. Turquoise Hill has been advised that preliminary indications from the definitive estimate process are that first sustainable production is trending toward the earlier months of the target range and that the forecast development capital cost remains within the range of $6.6-billion to $7.1-billion.
Entree/Oyu Tolgoi JV property:
Entree's 2018 technical report completed on its interest in the Entree/Oyu Tolgoi JV property discusses two development scenarios, a reserve case and a life-of-mine preliminary economic assessment (PEA). The 2018 reserve case is based only on mineral reserves attributable to the Entree/Oyu Tolgoi joint venture from lift 1 of the Hugo North Extension underground block cave located at the northern portion of panel 1. Both the 2018 reserve case and the 2018 PEA are based on information reported within the 2016 Oyu Tolgoi feasibility study.
- The company has not yet been provided with OTFS20 or any of the data or assumptions underlying OTFS20, the block cave designs in OTFS20 or Turquoise Hill's updated mineral resources and reserves and the company is therefore unable to verify such data or the scientific and technical disclosures made by Turquoise Hill at this time. For information on the company's interest in Entree/Oyu Tolgoi JV property, see the 2018 technical report available on SEDAR.
- Once the definitive estimate and the continuing panel 1 optimization studies have been completed and delivered to Entree with OTFS20, the company expects to be able to assess the potential impact on Entree/Oyu Tolgoi JV property resources and reserves, as well as production and financial assumptions and outputs from the two alternative cases, the 2018 reserve case and the 2018 PEA. Entree will continue to evaluate any information made available to it by Rio Tinto or OTLLC and will update the market accordingly.
On Sept. 14, 2020, the company closed a non-brokered private placement of 10,278,000 units of the company at a price of 43 cents per unit for gross proceeds of approximately $4.4-million. Each unit consists of one common share and one-half of one transferable common share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the company at a price of 60 cents per share for a period of three years following the date of issuance.
- Q3 2020 operating loss was $400,000 and was consistent with the comparative quarter of Q3 2019.
- Q3 2020 operating cash outflow after working capital was $300,000 and was consistent with the $300,000 operating cash outflow in Q3 2019.
- As at Sept. 30, 2020, the cash balance was $7.4-million and the working capital balance was $7.5-million. The company holds the majority of its cash in Canadian currency.
- The company recognizes the unprecedented situation surrounding the continuing COVID-19 pandemic and is closely monitoring the effect of the COVID-19 pandemic on its business and operations and will continue to update the market on the impacts to the company's business and operations in relation to these extraordinary circumstances.
Outlook and strategy
The company's primary objective for the 2020 year continues to be to work with other Oyu Tolgoi stakeholders to advance potential amendments to the joint venture agreement that currently governs the relationship between Entree and OTLLC and, upon finalization, transfer the Shivee Tolgoi and Javhlant mining licences to OTLLC as manager of the Entree/Oyu Tolgoi JV. The form of Entree/Oyu Tolgoi JV was agreed between the parties in 2004, prior to the execution of the Oyu Tolgoi investment agreement and commencement of underground development. The company currently is registered in Mongolia as the 100-per-cent ultimate holder of the Shivee Tolgoi and Javhlant mining licences.
The company believes that amendments that align the interests of all stakeholders, as they are now understood, would be in the best interests of all stakeholders, provided there is no net erosion of value to Entree. No agreements have been finalized and there are no assurances agreements may be finalized in the future.
The company continues to expect 2020 full-year expenditures, which include Mongolian site management and compliance costs, to be between $1.5-million and $1.7-million.
The company's interim financial statements and management's discussion and analysis for the third quarter ended Sept. 30, 2020, are available on the company's website on SEDAR and on EDGAR.
Robert Cinits, professional geoscientist, consultant to Entree and the company's former vice-president of corporate development, and a qualified person as defined by National Instrument 43-101, has approved the technical information in this release. For further information on the Entree/Oyu Tolgoi JV property, see the company's technical report, with an effective date of Jan. 15, 2018, available on SEDAR.
About Entree Resources Ltd.
Entree Resources is a Canadian mining company with a unique carried joint venture interest on a significant portion of one of the world's largest copper-gold projects -- the Oyu Tolgoi project in Mongolia. Entree has a 20-per-cent or 30-per-cent carried participating interest in the Entree/Oyu Tolgoi JV, depending on the depth of mineralization. Sandstorm Gold Ltd., Rio Tinto and Turquoise Hill are major shareholders of Entree, holding approximately 21 per cent, 9 per cent and 8 per cent of the shares of the company, respectively.
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