VANCOUVER, BC, Aug. 4, 2020 /CNW/ - Entrée Resources Ltd. (TSX: ETG) (OTCQB: ERLFF) (the "Company" or "Entrée") has today filed its interim financial results for the second quarter ended June 30, 2020. All numbers are in U.S. dollars unless otherwise noted.
Q2 2020 HIGHLIGHTS
Oyu Tolgoi Underground Development Update – Mongolia
The Oyu Tolgoi project in Mongolia includes two separate land holdings: the Oyu Tolgoi mining licence, which is held by Entrée's joint venture partner Oyu Tolgoi LLC ("OTLLC") and the Entrée/Oyu Tolgoi JV Property, which is a partnership between Entrée and OTLLC. On July 2 and July 28, 2020, OTLLC's 66% shareholder Turquoise Hill Resources Ltd. ("Turquoise Hill") provided updates on underground development:
The unprecedented circumstances of the COVID-19 (coronavirus) pandemic impacted some aspects of underground construction in the second quarter 2020 due to continued restrictions on mine site access for teams from OTLLC, Rio Tinto International Holdings Ltd. ("Rio Tinto") and their construction partners.
Despite the challenges presented by COVID-19, underground development on the Oyu Tolgoi mining licence continued, achieving strong productivity in underground advancement during the second quarter 2020 (1,830 equivalent metres in June with an average monthly rate of 1,831 equivalent metres for the quarter).
Shafts 3 and 4 continued on care and maintenance and this is expected to continue until expert service providers can return to site to complete technical commissioning of specialized equipment and commence sinking activities. Work also slowed on some essential underground material handling infrastructure, in particular the construction of primary crusher one, which has now returned to 24-hour shifts following a period of day shift only. Personnel numbers on site have been limited in order to manage the risks around COVID-19.
Routine Shaft 2 rope shortening was successfully completed utilizing remote presence technology. Payload and speeds are back to planned levels and people and materials movement via the service hoist continue to operate normally.
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. OTLLC is in the process of submitting OTFS20 with the Government of Mongolia in order to comply with local regulatory requirements. OTFS20 does not reflect the impacts of the COVID-19 pandemic, which are ongoing and continue to be assessed.
Turquoise Hill also announced on July 2, 2020 its updated mineral resources and mineral reserves prepared in accordance with the requirements of National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101"), and CIM definition standards for mineral resources and mineral reserves (2014). The new mine design for Panel 0 reduces the mineral reserve estimate for the overall Hugo North Lift 1 underground mine due to the inclusion of two structural pillars planned to be located on the Oyu Tolgoi mining licence. However, the ore tonnes and contained copper, gold and silver for the Probable mineral reserve that Turquoise Hill reported for Hugo North Extension Lift 1 on the Entrée/Oyu Tolgoi JV Property have all increased.
The block cave design incorporated in OTFS20 provides for 120 metre structural pillars included to the north and south of Panel 0, protecting ore handling infrastructure (which will be moved into the structural pillars) and increasing the optionality of sequencing Panel 1 and Panel 2. The Hugo North Extension deposit on the Entrée/Oyu Tolgoi JV Property is located at the northern portion of Panel 1 and is not affected by the pillars.
Turquoise Hill believes the existing feasibility study designs for Panel 1 and Panel 2 remain executable based on the current orebody understanding. However, with the introduction of structural pillars, Panels 1 and 2 become independent, allowing for much greater operational flexibility.
Panel 1 and Panel 2 design optimization studies have been initiated by OTLLC and Rio Tinto. The studies are not expected to delay the ramp up of Panel 1 or Panel 2. Drilling work is underway and the resulting updates to geotechnical modelling and mine design review are expected by Turquoise Hill to continue into 2021.
OTFS20 incorporates 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 will now undergo further detailed design, engineering and optimization to support the definitive estimate review (the "Definitive Estimate"), expected to be completed by OTLLC, Rio Tinto and Turquoise Hill before the end of the year, subject to any delays due to the impacts of the COVID-19 pandemic.
Entrée/Oyu Tolgoi JV Property
Entrée's 2018 Technical Report completed on its interest in the Entrée/Oyu Tolgoi JV Property discusses two development scenarios, a reserve case (the "2018 Reserve Case") and a Life-of-Mine Preliminary Economic Assessment (the "2018 PEA"). The 2018 Reserve Case is based only on mineral reserves attributable to the Entrée/Oyu Tolgoi joint venture (the "Entrée/Oyu Tolgoi JV") from Lift 1 of the Hugo North Extension underground block cave. 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 Entrée/Oyu Tolgoi JV Property, see the 2018 Technical Report available on SEDAR at www.sedar.com.
Once the Definitive Estimate and the Panel 1 optimization studies have been completed and delivered to Entrée with OTFS20, the Company will be able to assess the potential impact on Entrée/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. Entrée will continue to evaluate any information made available to it by Rio Tinto or OTLLC and will update the market accordingly.
Q2 2020 operating loss was $0.5 million compared to the operating loss of $0.4 million in Q2 2019. The increase was due to professional and advisory fees related to advancing potential amendments to the Entrée/Oyu Tolgoi joint venture agreement (the "Entrée/Oyu Tolgoi JVA").
Q2 2020 operating cash outflow after working capital was $0.4 million compared to a $0.5 million operating cash outflow in Q2 2019.
As at June 30, 2020, the cash balance was $4.5 million and the working capital balance was $4.4 million. The Company holds the majority of its cash in Canadian currency.
The Company recognizes the unprecedented situation surrounding the ongoing 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 Entrée/Oyu Tolgoi JVA that currently governs the relationship between Entrée and OTLLC and upon finalization, transfer the Shivee Tolgoi and Javhlant mining licences to OTLLC as manager of the Entrée/Oyu Tolgoi joint venture. The form of Entrée/Oyu Tolgoi JVA 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% 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 Entrée. 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 ("MD&A") for the second quarter ended June 30, 2020 are available on the Company's website at www.EntreeResourcesLtd.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Robert Cinits, P.Geo., consultant to Entrée and the Company's former Vice President, Corporate Development, and a Qualified Person as defined by NI 43-101, has approved the technical information in this release. For further information on the Entrée/Oyu Tolgoi JV Property, see the Company's Technical Report (the "2018 Technical Report"), titled "Entrée/Oyu Tolgoi Joint Venture Project, Mongolia, NI 43-101 Technical Report", with an effective date of January 15, 2018, available on SEDAR at www.sedar.com