Entrée surges on copper assays at Oyu Tolgoi JV with Rio

Shares of Entrée Resources (TSX: ETG; OTCQB: ERLFF) shot up 15% on Monday after the company reported strong drill results at a joint venture with Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) on part of the giant Oyu Tolgoi mine in Mongolia. 

Two holes at the Hugo North Extension (HNE) porphyry deposit each cut 448 metres from surface grading 1.62% copper-equivalent including 172 metres at 1.99% copper-equivalent and 143 metres at 1.17% copper-equivalent, Entrée said. Assays from six underground holes returned grades as high as 2.37% copper-equivalent.

“Hugo North, including the HNE deposit on the JV property, continues to demonstrate the potential to be one of the best copper-gold deposits discovered in the last 50 years,” Entrée CEO Stephen Scott  said in a release. “I suspect none of our shareholders will be surprised by these outstanding additional drill results, which are entirely consistent with results disclosed by the company earlier this year.”

Shares in Entrée Resources closed Monday at $2.10 apiece in Toronto, having hit a 52-week high of $2.39 a month ago. The company has a market capitalization of $427.1 million.

Oyu Tolgoi

Rio’s part of the joint venture, its unit Oyu Tolgoi LLC, holds two-thirds of the Oyu Tolgoi copper-gold mine that began production last year. It’s expected to become one of the world’s largest copper mines by 2030.

Entrée’s partnership with Rio’s unit covers part of the Shivee Tolgoi mining licence and all of the Javhlant licence. They include the HNE and Heruga deposits plus other exploration targets. The combined area is nearly 400 sq. km. Entrée has a 30% stake in Hugo’s mineralization up to 560 metres depth and 20% on deeper ore. Rio’s unit has held 80% of the JV concerning Hugo since 2008. 

Results from 14 drill holes reported by the joint venture in July showed up to 2.79% copper-equivalent from surface and 5.43% copper-equivalent underground. The new drill results comprise eight of 33 drill holes completed last year, Entrée said. 

The drill results are expected to be included in an updated resource model for the HNE deposit. It has probable reserves of 40 million tonnes grading 1.54% copper, 0.53 gram per tonne gold and 3.63 grams silver, according to a 2021 estimate. These reserves are contained in the HNE Lift One block cave.

Arbitration?

Lift One underground development is headed towards commercial production, but JV contract negotiations are threatening the process, Entrée CEO Scott said last week. 

“We have had to look at other ways to ensure shareholder interests are protected, including arbitration,” Scott said. “It is very important that we have certainty around the terms and conditions the parties will adhere to going forward.” 

Entrée says the transfer of the Shivee Tolgoi and Javhlant licences to Rio’s unit is necessary to maximize operational efficiencies. In its negotiations, Entrée is seeking an “effective mechanism” for the company to fulfill any obligation under Mongolian law to share with the state up to 34% of its economic benefit. Mongolia holds 34% of Rio’s unit.

The HNE deposit also includes Lift Two, which is directly below Lift One and represents the next potential stage of underground mining at the JV property. Mineral resources from Lift Two form the basis of the 2021 mine plan. It includes 166 million tonnes of indicated and inferred resources with an average expected run-of-mine feed grade of 1.35% copper, 0.49 gram gold and 3.6 grams silver.