UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(cid:31)
OR
OR
(cid:31)
OR
(cid:31)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2014
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ______
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:
Commission file number 001-32570
ENTRÉE GOLD INC.
(Exact name of Registrant as specified in its charter)
Province of British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 1201 – 1166 Alberni Street
Vancouver, British Columbia, Canada V6E 3Z3
(Address of principal executive offices)
Susan McLeod, Vice-President Legal Affairs
Suite 1201 – 1166 Alberni Street
Vancouver, British Columbia, Canada V6E 3Z3
Telephone: (604) 687-4777
Email: smcleod@entreegold.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Exchange
Common Shares, no par value
NYSE MKT LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the Registrant’s classes of capital or common stock as of the
close of the period covered by the annual report: As at December 31, 2014, 146,984,385 common shares of the
Registrant were issued and outstanding
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:31) No
If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes (cid:31) No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No (cid:31)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
Yes No (cid:31)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer (cid:31)
Accelerated filer (cid:31)
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included
in this filing:
U.S. GAAP
International Financial Reporting Standards as issued (cid:31) Other(cid:31)
by the International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow:
Item 17 (cid:31)
Item 18 (cid:31)
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes (cid:31) No
TABLE OF CONTENTS
Part I. .......................................................................................................................................................................... 11
Item 1.
Identity of Directors, Senior Management and Advisors ......................................................... 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 .................................................................................................... 84
Item 5.
Operating and Financial Review and Prospects ....................................................................... 85
Item 6.
Directors, Senior Management and Employees ....................................................................... 96
Item 7.
Major Shareholders and Related Party Transactions ............................................................. 118
Item 8.
Financial Information............................................................................................................. 119
Item 9.
The Offer and Listing............................................................................................................. 120
Item 10.
Additional Information .......................................................................................................... 121
Item 11.
Quantitative and Qualitative Disclosures about Market Risk ................................................ 133
Item 12.
Description of Securities Other than Equity Securities .......................................................... 135
Part II. ...................................................................................................................................................................... 135
Item 13.
Defaults, Dividend Arrearages and Delinquencies ................................................................ 135
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds .................... 135
Item 15.
Controls and Procedures ........................................................................................................ 135
Item 16.
[Reserved] .............................................................................................................................. 136
Item 16A. Audit Committee Financial Expert ........................................................................................ 136
Item 16B. Code of Ethics ........................................................................................................................ 136
Item 16C. Principal Accountant Fees and Services ................................................................................ 136
Item 16D. Exemptions from the Listing Standards for Audit Committees ............................................. 137
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers ................................ 137
Item 16F. Changes in Registrant's Certifying Accountant ..................................................................... 137
Item 16G. Corporate Governance ........................................................................................................... 137
Item 16H. Mine Safety Disclosure. ......................................................................................................... 138
Part III. ..................................................................................................................................................................... 138
Item 17.
Financial Statements .............................................................................................................. 138
Item 18.
Financial Statements .............................................................................................................. 138
Item 19.
Exhibits ................................................................................................................................ 161
SIGNATURES ......................................................................................................................................................... 162
INTRODUCTION
In this annual report on Form 20-F, which we refer to as the "Annual Report", except as otherwise indicated or as the
context otherwise requires, the "Company", "we", "our" or "us" or "Entrée" or "Entrée Gold" refers to Entrée Gold Inc.
and its consolidated subsidiaries, as applicable. The Company is a "foreign private issuer" as defined in Rule 3b-4 under
the United States Securities Exchange Act of 1934, as amended (the "U.S. Exchange Act"). The equity securities of the
Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the U.S. Exchange Act pursuant to
Rule 3a12-3.
CURRENCY
Unless we otherwise indicate in this Annual Report, all references to "Canadian Dollars", "Cdn $" or "C$" are to the
lawful currency of Canada and all references to "U.S. Dollars" or "$" are to the lawful currency of the United States.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains "forward looking information" and "forward-looking statements" (together, "forward-looking
statements") within the meaning of securities legislation in Canada and the United States Private Securities Litigation
Reform Act of 1995, as amended. Such forward-looking statements concern the Company’s anticipated results and
developments in the Company’s operations in future periods, planned exploration and development of its properties, plans
related to its business and other matters that may occur in the future. These statements relate to analyses and other
information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of
management.
Statements concerning mineral resource estimates may also be deemed to constitute forward-looking statements to the
extent that they involve estimates of the mineralization that will be encountered if the property is developed, and such
statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections,
objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects"
or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that
certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not
statements of historical fact and may be forward-looking statements. While the Company has based these forward-looking
statements on its expectations about future events as at the date that such statements were prepared, the statements are not
a guarantee of the Company’s future performance and are subject to risks, uncertainties, assumptions and other factors
which could cause actual results to differ materially from future results expressed or implied by such forward-looking
statements. Such factors and assumptions include, amongst others, the effects of general economic conditions, changing
foreign exchange rates, actions by government authorities, uncertainties associated with negotiations and misjudgments in
the course of preparing forward-looking statements. In addition, there are also known and unknown risk factors which
may cause actual events or results to differ from those expressed or implied by the forward-looking statements, including,
without limitation:
the future prices of copper, gold, molybdenum and silver;
the estimation of mineral reserves and resources;
the realization of mineral reserve and resource estimates;
anticipated future production, cash flows and mine life;
the initiation of a prefeasibility study on the Ann Mason deposit;
the preparation and release of an updated resource estimate and updated PEA for the Ann Mason deposit;
the potential development of the Ann Mason Project;
the potential impact of future exploration results on Ann Mason mine design and economics;
anticipated capital and operating costs;
the potential funding and development of the Oyu Tolgoi underground mine;
the examination of alternative production scenarios and associated expansion options identified in OTFS14;
the expected timing of initial production from Lift 1 of the Oyu Tolgoi underground mine;
discussions with the Government of Mongolia, Rio Tinto, OTLLC and Turquoise Hill on a range of issues
including Entrée’s interest in the Joint Venture Property, the Shivee Tolgoi and Javhlant mining licences and
certain material agreements;
potential actions by the Government of Mongolia with respect to the Shivee Tolgoi and Javhlant mining
licences and Entrée’s interest in the Joint Venture Property;
1
the potential for Entrée to be included in or otherwise receive the benefits of the Investment Agreement or
another similar agreement;
the potential for the Government of Mongolia to seek to directly or indirectly invest in Entrée’s interest in
the Hugo North Extension and Heruga deposits;
the potential impact of amendments and proposed amendments to the laws of Mongolia;
potential size of a mineralized zone;
potential expansion of mineralization;
potential discovery of new mineralized zones;
potential types of mining operations;
government regulation of exploration and mining operations;
the potential application of the Government of Mongolia’s Resolution 140 and Resolution 175 to the Shivee
Tolgoi and Javhlant licences;
potential metallurgical recoveries and grades;
plans for future exploration and development programs and budgets;
permitting time lines;
anticipated business activities;
corporate strategies;
requirements for additional capital;
uses of funds;
proposed acquisitions and dispositions of assets;
future financial performance;
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 ("PFIC"), which could have
negative consequences for U.S. investors;
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.
The above list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks
and uncertainties that could affect forward-looking statements are described further under the section heading "Item 3.
Key Information – D. Risk Factors" below in this Annual Report. Should one or more of these risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in
the forward-looking statements. Forward-looking statements are made based on management’s beliefs, estimates and
opinions on the date the statements are made, and the Company undertakes no obligation to update forward-looking
statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law.
Investors are cautioned against attributing undue certainty to forward-looking statements.
The Company qualifies all the forward-looking statements contained in this Annual Report by the foregoing
cautionary statements.
2
CAUTIONARY NOTE TO UNITED STATES INVESTORS
REGARDING MINERAL RESERVE AND RESOURCE ESTIMATES
As used in this Annual Report, the terms "mineral reserve", "Proven mineral reserve" and "Probable mineral reserve" are
Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for
Mineral Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") - CIM
Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These
definitions differ from the definitions in the U.S. Securities and Exchange Commission’s ("SEC") Industry Guide 7
("SEC Industry Guide 7") under the United States Securities Act of 1933, as amended ("U.S. Securities Act"). Under SEC
Industry Guide 7 standards, a "final" or "bankable" feasibility study is required to report reserves, the three-year historical
average price is used in any reserve or cash flow analysis to designate reserves and all necessary permits and
governmental authorizations must be filed with the appropriate governmental authority.
In addition, the terms "mineral resource", "Measured mineral resource", "Indicated mineral resource" and "Inferred
mineral resource" are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms
under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the
SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be
converted into reserves. "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. It cannot be assumed that all, or any part, of an Inferred mineral
resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred mineral resources may
not form the basis of feasibility or prefeasibility studies, except in rare cases. Investors are cautioned not to assume that all
or any part of an Inferred mineral resource exists or is economically or legally mineable. Disclosure of "contained ounces"
in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute "reserves" by SEC Industry Guide 7 standards as in place tonnage and grade
without reference to unit measures.
Accordingly, information contained in this Annual Report and the documents incorporated by reference herein contain
descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies
subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and
regulations thereunder.
EXPLANATORY NOTE REGARDING PRESENTATION OF FINANCIAL INFORMATION
International Financial Reporting Standards
The Company is a "foreign private issuer" under SEC regulations. The Company files its financial statements with both
Canadian and U.S. securities regulators in accordance with U.S. GAAP, as permitted under current regulations. In 2008,
the Accounting Standards Board in Canada and the Canadian Securities Administrators ("CSA") confirmed that domestic
issuers were required to transition to International Financial Reporting Standards ("IFRS") for fiscal years beginning on or
after January 1, 2011. On June 27, 2008, the CSA Staff issued Staff Notice 52-321 – Early Adoption of International
Financial Reporting Standards, Use of US GAAP and References to IFRS-IASB which confirmed that domestic issuers
that are also SEC registrants are able to continue to use U.S. GAAP. Consequently, the Company is not required to
convert to IFRS effective January 1, 2011 and has elected to continue using U.S. GAAP.
The annual audited consolidated financial statements contained in this Annual Report on Form 20-F are reported in United
States dollars, unless otherwise specified. All references to "common shares" mean common shares in the capital stock of
the Company. See "Exchange Rate" below.
Non-U.S. GAAP Performance Measurement
"Cash Costs" is a non-U.S. GAAP Performance Measurement. This performance measure is included because this statistic
is widely accepted as the standard of reporting cash costs of production in North America. This performance measure does
not have a meaning within U.S. GAAP and, therefore, amounts presented may not be comparable to similar data presented
by other mining companies. This performance measure should not be considered in isolation as a substitute for measures
of performance in accordance with U.S. GAAP.
3
alteration
anomaly
assay
block caving
chip sample
claim
concentrate
CuEq
cut-off grade
deposit
diamond drilling
drill core
fault
feasibility study (FS)
Glossary of Mining Terms
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.
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.
The chemical analysis of an ore, mineral or concentrate of metal to determine the
precise quantity of specific metals or elements.
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.
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.
An area of ground in which the mineral rights have been acquired; also called a
tenement, exploration licence or exploration concession.
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.
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.
The lowest grade of mineral resources considered economic; used in the
calculation of reserves and resources in a given deposit.
A mineral occurrence of sufficient size and grade that it might, under favorable
circumstances, be considered to have economic potential.
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.
A long, continuous cylindrical sample of rock brought to surface by diamond
drilling.
A fracture in rock along which the adjacent rock units are relatively displaced.
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 prefeasibility study.
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.
4
grade
gravity
heap leach
Indicated mineral
resource
The relative quantity or the percentage of ore-mineral or metal content in an ore
body.
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.
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").
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
intrusive/intrusion
Measured mineral
resource
metallurgy
mineral reserve
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.
Rock which while molten, penetrated into or between other rocks but solidified
before reaching the surface.
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
through
reliable exploration, sampling and
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.
information gathered
testing
The science that deals with procedures used in extracting metals from their ores,
purifying and alloying metals, and creating useful objects from metals.
A mineral reserve is the economically mineable part of a Measured or Indicated
mineral resource demonstrated by at least a prefeasibility study. This study must
include adequate information on mining, processing, metallurgical, economic and
other relevant factors that demonstrate, at the time of reporting, that economic
extraction can be justified. A mineral reserve includes diluting materials and
allowances for losses that may occur when the material is mined.
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.
5
mineral resource
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 Earth’s crust in such form and quantity and of
such a grade or quality that it has reasonable prospects for economic extraction.
The location, quantity, grade, geological characteristics and continuity of a mineral
resource are known, estimated or interpreted from specific geological evidence and
knowledge.
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)
NI 43-101
NSR royalty
open pit mining
ore
oxidation
oxidized or oxide
minerals
porphyry
porphyry copper deposit
prefeasibility study
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.
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.
The percentage of net smelter returns that the mine is obligated to pay to the
royalty holder.
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).
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.
A chemical reaction caused by exposure to oxygen which results in a change in the
chemical composition of a mineral.
Oxide- and carbonate-based minerals formed by the weathering of sulphide
minerals. Examples include: malachite, turquoise and chrysocolla.
An igneous rock of any composition that contains conspicuous, large mineral
crystals in a fine-grained groundmass; a porphyritic igneous rock.
large mineral deposit,
A
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.
typically within porphyry rocks,
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
6
of the mineral resource may be classified as a mineral reserve.
preliminary economic
assessment (PEA)
A study, other than a prefeasibility or feasibility study, that includes an economic
analysis of the potential viability of mineral resources.
Probable mineral reserve
Proven mineral reserve
Qualified Person (QP)
The economically mineable part of an Indicated and, in some circumstances, a
Measured mineral resource demonstrated by at least a prefeasibility study. This
study must include adequate information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate, at the time of reporting, that
economic extraction can be justified.
The economically mineable part of a Measured mineral resource demonstrated by
at least a prefeasibility study. This study must include adequate information on
mining, processing, metallurgical, economic, and other relevant factors that
demonstrate, at the time of reporting, that economic extraction is justified.
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)
strip ratio
stripping
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.
The ratio of waste rock that must be removed for every tonne of ore that is mined
in an open pit.
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").
7
trench
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.
8
billion
billion tonnes
cubic metre
degree
degrees Celsius
dollar (U.S.)
dry metric tons
gram
grams per tonne
greater than
hectare (10,000 m2)
kilo troy ounces
kilogram
kilometre
kilometres per hour
kilovolt
kilowatt hour
kilowatt hours per tonne
(metric)
less than
litre
litres per second
litres per tonne
megawatts
metre
B
Bt
m3
°
°C
$
dmt
g
g/t
>
ha
koz
kg
km
km/hr
kV
kWh
kWh/t
<
L
L/s
L/t
MW
m
metres above sea level
masl
metres per second
m/s
microns
µm
Units of Measure
9
millimetre
million
million pounds
million ounces
million tonnes
minute (geographic
coordinate)
ounce
parts per million
per
per annum (year)
per day
percent
pound(s)
second (geographic
coordinate)
square centimetre
square kilometre
mm
M
Mlb
Moz
Mt
'
oz
ppm
/
/a
/d
%
lb
"
cm2
km2
square metre
m2
three dimensional
tonne (1,000 kg)
tonnes per cubic metre
tonnes per day
tonnes per year
3D
t
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10
PART I.
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A.
Selected Financial Data
The selected financial data and the information in the following table of the Company as at December 31, 2014, 2013,
2012, 2011 and 2010 and for the years then ended was derived from the audited consolidated financial statements of the
Company, audited by Davidson & Company LLP, independent Registered Public Accountant, as indicated in their report
which is included elsewhere in this Annual Report.
The selected historical consolidated financial information presented below is condensed and may not contain all of the
information that you should consider. This selected financial data should be read in conjunction with our annual audited
consolidated financial statements, the notes thereto and the sections entitled "Item 3. Key Information – D. Risk Factors"
and "Item 5 — Operating and Financial Review and Prospects".
The table below sets forth selected consolidated financial data under U.S. GAAP. The information has been derived from
our annual audited consolidated financial statements set forth in "Item 18 — Financial Statements".
In this Annual Report all dollars are expressed in United States dollars unless otherwise stated.
and
Exploration
General
administrative
Consultancy and
advisory fees
Impairment
of
mineral property
interests
Interest expense
Stock-based
compensation
Loss from equity
investee
Depreciation
Fair
adjustment
asset
commercial
papers
Gain on sale of
investments
Gain on sale of
mineral property
interest
Current
tax
(recovery)
Interest income
value
of
backed
income
expense
2014
$9,018,994
2013
$5,808,316
2012
$7,966,902
2011
$17,532,831
2010
$11,800,772
3,936,413
5,510,641
4,295,800
4,921,284
5,374,339
830,623
1,941,130
-
-
-
552,095
264,869
437,732
260,453
486,746
229,359
531,005
151,952
-
44,103
251,390
1,422,297
1,207,878
991,161
2,897,845
107,907
65,517
146,051
102,941
1,012,156
150,654
2,397,085
196,221
985,441
203,086
-
-
(147,564)
-
-
-
-
-
(3,326,275)
(28,096)
(451,892)
(104,914)
(1,574,523)
(123,255)
(295,023)
319,112
(431,596)
-
(190,449)
152,190
(342,343)
-
(287,536)
11
-
-
loss
Foreign
exchange
(gain)
Deferred income
tax
(recovery)
expense
Net loss for the
year
Net
per
loss
share, basic and
diluted
Total assets
Total long term
liabilities
Working
capital(1)
Weighted
average number
of
common
shares
outstanding
(1,978,854)
(1,113,728)
(187,773)
491,504
(403,230)
(3,933,392)
(2,381,868)
329,770
(4,981,884)
(545,412)
8,669,188
11,422,025
15,196,129
17,140,208
20,069,408
(0.06)
79,690,498
(0.08)
97,395,105
(0.12)
64,173,530
(0.15)
74,589,810
(0.19)
81,359,098
44,269,904
50,956,860
15,286,041
13,720,492
16,158,190
32,603,711
46,394,496
4,699,256
19,004,136
21,268,201
146,883,700
143,847,888
128,650,791
115,978,815
105,814,724
(1) Working capital is defined as Current Assets less Current Liabilities.
Critical Accounting Estimates and Policies
The Company’s accounting policies are discussed in detail in our annual audited consolidated financial statements set
forth in "Item 18 — Financial Statements", however, accounting policies require the application of management’s
judgment in respect of the following relevant matters:
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.
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 judgments 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, 2014. Unlike other numbers in the
accounts, this is a calculated amount not based on historical cost, but on subjective assumptions introduced to an
12
option pricing model, in particular: (1) an estimate for the average future hold period of issued stock options
before exercise, expiry or cancellation; and (2) future volatility of the Company’s share price in the expected hold
period (using historical volatility as a reference). Given that there is no market for the options and they are not
transferable, the resulting value calculated is not necessarily the value the holder of the option could receive in an
arm’s-length transaction.
The Company’s accounting policy is to expense exploration costs on a project by project basis consistent with
U.S. GAAP. The policy is consistent with that of other exploration companies that have not established mineral
reserves. When a mineral reserve has been objectively established further exploration costs would be deferred.
Actual results may differ materially from those estimates based on these assumptions.
Recent Changes in Accounting Policy and Disclosures
In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2014-10, "Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including
an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation". This ASU does the following, among
other things: (1) eliminates the requirement to present inception-to-date information on the statements of income, cash
flows, and shareholders’ equity; (2) eliminates the need to label the financial statements as those of a development stage
entity; (3) eliminates the need to disclose a description of the development stage activities in which the entity is engaged;
and (4) amends FASB ASC 275, "Risks and Uncertainties", to clarify that information on risks and uncertainties for
entities that have not commenced planned principal operations is required. The amendments in ASU No. 2014-10 related
to the elimination of Topic 915 disclosures and the additional disclosure for Topic 275 are effective for public companies
for annual and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company
has evaluated this ASU and early adopted for the period beginning on April 1, 2014.
A detailed summary of all of the Company’s significant accounting policies, changes in accounting policies and the
estimates derived therefrom is included in Note 2 to the Annual Financial Statements for the year ended December 31,
2014.
Exchange Rates
The following table sets out the average exchange rates for one United States dollar expressed in terms of Canadian
dollars (based on the average of the exchange rates on the last day of each month) in each of the years 2010 to 2014, and
the high, low, and end of period rate for each of those years.
High for period
Low for period
End of period
Average for period
2014
1.1643
1.0614
1.1601
1.1045
2013
1.0697
0.9839
1.0636
1.0299
2012
1.0418
0.9710
0.9949
0.9996
2011
1.0604
0.9449
1.0170
0.9891
2010
1.0778
0.9946
0.9946
1.0299
The following table sets out the high and low exchange rates for one United States dollar expressed in terms of Canadian
dollars in each of the months September 2014 to February 2015.
September
2014
1.1208
1.0863
October
2014
1.1289
1.1136
November
2014
1.1427
1.1236
December
2014
1.1643
1.1344
January
2015
1.2717
1.1728
February
2015
1.2635
1.2403
High
Low
Exchange rates are based on the Bank of Canada nominal noon exchange rates. The nominal noon exchange rate on March
27, 2015 as reported by the Bank of Canada for the conversion of United States dollars into Canadian dollars was US$1.00
= C$1.2580.
B.
Capitalization and Indebtedness
Not Applicable.
13
C.
Reasons for the Offer and Use of Proceeds
Not Applicable.
D.
Risk Factors
In addition to the other information presented in this Annual Report, the following should be considered carefully in
evaluating us and our business. This Annual Report contains forward-looking statements that involve risk and
uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this
Annual Report.
The significant properties in which the Company has an interest are all currently at the exploration or development stage.
The activities of the Company are speculative due to the high risk nature of its business which is the acquisition,
financing, exploration and development of mining properties. The following risk factors, which are not exhaustive, could
materially affect the Company’s business, financial condition or results of operations and could cause actual events to
differ materially from those described in forward-looking statements relating to the Company. These risks include but are
not limited to the following:
Legal and Political Risks
Entrée may have to make certain concessions to the Government of Mongolia.
The Minerals Law of Mongolia provides that the State may be an equity participant with any private legal entity, up to a
34% equity interest, in the exploitation of any Strategic Deposit where the quantity and grade of the deposit have been
defined by exploration that has not been funded from the State budget.
The Ministry of Mining has advised Entrée that it considers the deposits on the Joint Venture Property to be part of the
series of Oyu Tolgoi deposits, which were declared to be Strategic Deposits under Resolution No. 57 dated July 16, 2009
of the State Great Khural. Entrée has been in discussions with stakeholders of the Oyu Tolgoi project, including the
Government of Mongolia, OTLLC, Erdenes Oyu Tolgoi LLC, Turquoise Hill and Rio Tinto, since the Government of
Mongolia temporarily restricted the joint venture licences from transfer in February 2013. The discussions to date have
focused on issues arising from Entrée’s exclusion from the Investment Agreement, including the fact that the Government
of Mongolia does not have a full 34% interest in the Joint Venture Property; the fact that the mining licences integral to
future underground operations are held by more than one corporate entity; and the fact that Entrée does not benefit from
the stability that it would otherwise have if it were a party to the Investment Agreement. In order to receive the benefits of
the Investment Agreement, the Government of Mongolia may require Entrée to agree to certain concessions, including
with respect to the ownership of the Entrée-OTLLC Joint Venture, Entrée LLC or the economic benefit of Entrée’s
interest in the Joint Venture Property, or the royalty rates applicable to Entrée’s share of the Joint Venture Property
mineralization. No agreements have been finalized.
If the parties fail to reach mutually acceptable agreements in a timely manner, there is a risk that the Government of
Mongolia may resort to measures which, whether legitimate or not, could have an adverse effect on the business, assets
and financial condition of Entrée as well as the Company’s share price. Such measures could include suspending,
revoking, cancelling or withdrawing the Shivee Tolgoi and Javhlant mining licences; attempting to invalidate, confiscate,
expropriate or rescind the Entrée-OTLLC Joint Venture or Entrée’s interest in the Joint Venture Property; and filing legal
proceedings against Entrée.
Entrée is subject to legal and political risk in Mongolia.
Entrée’s interest in the Joint Venture Property and Shivee West are not covered by the Investment Agreement.
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 its or
OTLLC’s 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, labor and economic developments, instability and unrest; corruption,
14
requests for improper payments or other corrupt practices; and significant or abrupt changes in the applicable regulatory or
legal climate. In addition, there can be no assurance that neighboring countries’ political and economic policies in relation
to Mongolia will not have adverse economic effects on the development of the Oyu Tolgoi project or Shivee West,
including the ability to access power, transport and sell product and access labor, supplies and materials.
There is no assurance that provisions under Mongolian law for compensation and reimbursement of losses to investors
under such circumstances would be effective to restore the full value of Entrée’s original investment or to compensate for
the loss of the current value of its interest in the Lookout Hill property. Entrée’s interest in the Lookout Hill property may
be affected in varying degrees by, among other things, government regulations with respect to restrictions on foreign
ownership, state ownership of Strategic Deposits, royalties, production, price controls, export controls, income and other
taxes, expropriation of property, employment, land use, water use, environmental legislation, mine safety and annual fees
to maintain mining licences in good standing. The regulatory environment is in a state of continuing change, and new
laws, regulations and requirements may be retroactive in their effect and implementation. There can be no assurance that
Mongolian laws protecting foreign investments will not be amended or abolished or that existing laws will be enforced or
interpreted to provide adequate protection against any or all of the risks described above.
The legal framework in Mongolia is, in many instances, based on recent political reforms or newly enacted legislation,
which may not be consistent with long-standing local conventions and customs. There may be ambiguities,
inconsistencies and anomalies in the agreements, licences and title documents through which Entrée holds its interest in
the Lookout Hill property, or the underlying legislation upon which that interest is based, which are atypical of more
developed legal systems and which may affect the interpretation and enforcement of Entrée’s rights and obligations.
Mongolian institutions and bureaucracies responsible for administering laws may lack a proper understanding of the laws
or the experience necessary to apply them in a modern business context. Many laws have been enacted, but in many
instances they are neither understood nor enforced and may be applied in an inconsistent, arbitrary and unfair manner,
while legal remedies may be uncertain, delayed or unavailable. In addition, Entrée’s licences, permits and assets are often
affected in varying degrees, by political instability and governmental regulations and bureaucratic processes, any one or
more of which could preclude Entrée from carrying out business activities fairly in Mongolia. Legal redress for such
actions, if available, is uncertain and can often involve significant delays.
Entrée is not presently a party to the Investment Agreement, and there can be no assurance that Entrée will be entitled
to all of the benefits of the Investment Agreement.
Entrée is not presently a party to the Investment Agreement. Although OTLLC agreed under the terms of the Earn-In
Agreement to use its best efforts to cause Entrée to be brought within the ambit of, made subject to and be entitled to the
benefits of the Investment Agreement or a separate stability agreement on substantially similar terms to the Investment
Agreement, unless and until Entrée finalizes agreements with the Government of Mongolia and other Oyu Tolgoi
stakeholders, there can be no assurance that Entrée will be entitled to all of the benefits of the Investment Agreement,
including stability with respect to taxes payable. If Entrée is not entitled to all of the benefits of the Investment
Agreement, it could be subject to the surtax royalty which came into effect in Mongolia on January 1, 2011. The rates of
the surtax royalty vary from 1% to 5% for minerals other than copper. For copper, the surtax royalty rates range between
22% and 30% for ore, between 11% and 15% for concentrates, and between 1% and 5% for final products. No surtax
royalty is charged on any minerals below a certain threshold market price, which varies depending on the type of minerals.
This is in addition to the standard royalty rates of 2.5% for coal sold in Mongolia and commonly occurring minerals sold
in Mongolia, and 5% for all other minerals.
Even if Entrée does finalize agreements with the Government of Mongolia and other Oyu Tolgoi stakeholders, there can
be no assurance that the present or future Parliament will refrain from enacting legislation that undermines such
agreements or the Investment Agreement or that the present or a future government will refrain from adopting government
policies or seeking to renegotiate the terms of such agreements or the Investment Agreement (which was threatened in
both 2011 and 2012) in ways that are adverse to Entrée’s interests or that impair Entrée’s ability to develop Shivee West
or OTLLC’s ability to develop and operate the Oyu Tolgoi project on the basis currently contemplated, which may have a
material adverse impact on Entrée and the Company’s share price.
Recent and future amendments to Mongolian laws could adversely affect Entrée’s interest in the Lookout Hill property
or make it more difficult or expensive to develop the property and carry out mining.
The Government of Mongolia has put in place a framework and environment for foreign direct investment. However,
there are political constituencies within Mongolia that have espoused ideas that would not be regarded by the international
mining community as conducive to foreign investment if they were to become law or official government policy. This
15
was evidenced by revisions to the Minerals Law in 2006 as well as by the recent passage of legislation to control foreign
direct investment in strategic sectors of the Mongolian economy, including mining.
In October 2011, Prime Minister Batbold stated in his 2012 budget speech that the Government of Mongolia is revisiting
all treaties for the avoidance of double taxation, including the 2002 convention between Canada and Mongolia for the
avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (the
"Canadian Double Tax Treaty").
On November 1, 2013, a new Investment Law came into effect in Mongolia. The new law is aimed at reviving foreign
investment by easing restrictions on investors in key sectors such as mining and by providing greater certainty on the taxes
they must pay. The new law replaces two previous laws, including SEFIL. The full impact of the new Investment Law is
not yet known.
On January 16, 2014, the Mongolian Parliament adopted a new State Minerals Policy. The main focus of the policy is to
establish a stable investment environment; improve the quality of mineral exploration, mining and processing; encourage
the use of environmentally friendly and modern technology; and strengthen the competitiveness of the Mongolian mining
sector on the international market. The State Minerals Policy is also intended to serve as the basis for amendments to the
existing Minerals Law and other laws relating to the mining sector. On July 1, 2014, the Mongolian Parliament passed the
2014 Amendments to the Minerals Law. In addition, the Mongolian Parliament also passed a separate law which repeals
the 2010 statute which imposed a moratorium on the granting of new exploration licences and the transfer of existing
licences. The 2014 Amendments extend the maximum period for an exploration licence from 9 years to 12 years (although
it ended the three year pre-mining period sometimes given to licence holders upon the expiration of their exploration
rights), extend the requirement for holders of mining licences to ensure that 90% of their workforce is comprised of
Mongolian nationals to the mining licence holder’s subcontractors as well, make clearer the roles and responsibilities of
government ministries and departments with respect to mineral matters, modify the definition of Strategic Deposit to
reflect its impact on the national economy and not regional economy, and provide for some instances where a tender may
not be required to obtain minerals licences where state funding has been used if related to compensation for declaring a
special needs area, among other changes.
On February 18, 2015, the Mongolian Parliament adopted the 2015 Amendment, which purports to allow a licence holder
to negotiate with the Government of Mongolia with respect to an exchange of the Government’s 34% (50% in cases where
exploration has been funded by the State budget) equity interest in a licence holder with a Strategic Deposit for an
additional royalty payable to the Government. The amount of the royalty payment would vary depending on the
particulars of the Strategic Deposit but cannot exceed 5 percent. The rate of this royalty payment shall be approved by the
Government of Mongolia. The full impact of the 2015 Amendment is not yet known.
The Ministry of Finance and certain Members of Parliament have released draft laws and draft amendments to the tax
legislation of Mongolia which include provisions related to the taxation of foreign legal entities operating in Mongolia and
minerals companies in general. If certain provisions of these amendments were adopted by Parliament as currently
drafted, they could adversely affect Entree's interests. It is not possible to determine when, if ever, these amendments
would be adopted and in what form.
If the Government of Mongolia revises, amends or cancels the Canadian Double Tax Treaty; if the new Investment Law,
State Minerals Policy, 2014 Amendments or 2015 Amendment are implemented or interpreted in a manner that is not
favorable to foreign investment or Entrée’s interests; or if new tax laws or amendments to tax laws are adopted that are not
favorable to foreign investment or Entrée’s interests, it could have an adverse effect on Entrée’s operations in Mongolia
and future cash flow, earnings, results of operations and financial condition as well as the Company’s share price.
On February 27, 2013, Entrée received Notice from MRAM regarding the Entrée-OTLLC Joint Venture’s mining
licences.
On February 27, 2013, Notice was delivered to Entrée by MRAM that by Order No. 43 dated February 22, 2013, the
Ministry of Mining has cancelled the 2009 Order of the Ministry of Mineral Resources and Energy registering the Hugo
Dummett (including the Hugo North Extension) and Heruga reserves, and has requested that the Minerals Resource
Council go over its previous conclusion that the reserves should be submitted to MRAM. The registration of reserves is a
pre-condition to applying for the conversion of an exploration licence into a mining licence. The Notice states that the
2009 Order breached Clause 48.4 of the Minerals Law of Mongolia and Clause 9 of the Charter of the Minerals Resource
Council because it was not within the authority of the Ministry of Mineral Resources and Energy to order that the reserves
be registered. The Notice, which is not explicitly concerned with the issuance of the mining licences, further advises that
16
any transfer, sale or lease of the Shivee Tolgoi and Javhlant mining licences is temporarily restricted. On September 4,
2013, the Minister of Mining issued Order No. 179, advising the Minerals Professional Council to re-submit its previous
conclusions regarding the reserves to MRAM for review and registration. On September 6, 2013, the head of MRAM
ordered that the Hugo Dummett (including the Hugo North Extension) and Heruga reserves be registered. While Entrée
was also subsequently advised that the temporary transfer restriction on the joint venture mining licences will be lifted, it
has not received official notification of the lifting of the restriction. Any future action by the Government of Mongolia to
suspend, revoke, withdraw or cancel the Shivee Tolgoi and Javhlant mining licences, whether legitimate or not, would
have an adverse effect on the business, assets and financial condition of Entrée as well as the Company’s share price.
The Earn-In Agreement requires OTLLC to enter into a form of joint venture agreement that bestows upon it certain
powers and duties as manager of the Entrée-OTLLC Joint Venture, including the duty to cure title defects, the duty to
prosecute and defend all litigation or administrative proceedings arising out of operations, and the duty to do all acts
reasonably necessary to maintain the Joint Venture Property assets, including the mining licences. Pursuant to the
Assignment Agreement dated March 1, 2005 between the Company, Turquoise Hill and OTLLC, the Company is also
entitled to look to Turquoise Hill for the performance of OTLLC’s obligations under the Earn-In Agreement, which is
governed by British Columbia law. In addition, the Shivee Tolgoi and Javhlant mining licences are included in the
contract area of the Investment Agreement. The Investment Agreement restricts the grounds upon which the Mongolian
State administrative authority in charge of geology and mining may revoke a mining licence covered by the Investment
Agreement. The Investment Agreement also includes a dispute resolution clause that requires the parties to resolve
disputes through international commercial arbitration procedures. Entrée is not a party to the Investment Agreement and
does not have any direct rights under the Investment Agreement. In the event that the Government of Mongolia suspends,
revokes, withdraws or cancels the Shivee Tolgoi and Javhlant mining licences, there can be no assurance that OTLLC,
Turquoise Hill or Rio Tinto will invoke the international arbitration procedures, or that Entrée will be able to enforce the
terms of the Earn-In Agreement to cause OTLLC or Turquoise Hill to do all acts reasonably necessary to maintain the
Joint Venture Property assets, including by invoking the international arbitration procedures under the Investment
Agreement. There may also be limitations on OTLLC, Turquoise Hill and Rio Tinto’s ability to enforce the terms of the
Investment Agreement against the Government of Mongolia, which is a sovereign entity, regardless of the outcome of an
arbitration proceeding. Without an effective means of enforcing the terms of the Earn-In Agreement or the Investment
Agreement, Entrée could be deprived of substantial rights and benefits with little or no recourse for fair and reasonable
compensation.
Entrée may experience difficulties with its joint venture partners; Rio Tinto controls the development of the Oyu Tolgoi
project, including the Joint Venture Property.
While the Entrée-OTLLC Joint Venture is operating under the terms of the form of joint venture agreement appended to
the Earn-in Agreement, the joint venture agreement has not been formally executed by the parties. There can be no
assurance that OTLLC or its shareholders will not attempt to renegotiate some or all of the material terms governing the
joint venture relationship in a manner which could have an adverse effect on Entrée’s future cash flow, earnings, results of
operations and financial condition as well as the Company’s share price.
OTLLC has earned either a 70% or 80% interest in mineralization extracted from the Joint Venture Property, depending
on the depth at which minerals are extracted, and has effective control of the Entrée-OTLLC Joint Venture. Rio Tinto,
which beneficially owns 20.7% of the Company’s issued and outstanding shares, exerts a significant degree of control
over the business and affairs of Turquoise Hill and OTLLC. Under the Heads of Agreement and MOA, Rio Tinto is
responsible for the management of the building and operation of the Oyu Tolgoi project (which includes the Heruga and
Hugo North Extension deposits on the Joint Venture Property); is responsible for all exploration operations on behalf of
OTLLC, including exploration on the Joint Venture Property; and prepares all programs and budgets for approval by the
OTLLC board. The interest of Rio Tinto, Turquoise Hill and OTLLC and the interests of the Company’s other
shareholders are not necessarily aligned and there can be no assurance that Rio Tinto, Turquoise Hill or OTLLC will
exercise its rights or act in a manner that is consistent with the best interests of the Company’s other shareholders.
Entrée is and will be subject to the risks normally associated with the conduct of joint ventures, which include
disagreements as to how to develop, operate and finance a project, inequality of bargaining power, incompatible strategic
and economic objectives and possible litigation between the participants regarding joint venture matters. These matters
may have an adverse effect on Entrée’s ability to realize the full economic benefits of its interest in the property that is the
subject of a joint venture, which could affect its results of operations and financial condition as well as the Company’s
share price.
17
Entrée may be unable to enforce its legal rights in certain circumstances.
In the event of a dispute arising at or in respect of Entrée’s foreign operations, Entrée may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in Canada
or other jurisdictions. Entrée may also be hindered or prevented from enforcing its rights with respect to a governmental
entity or instrumentality because of the doctrine of sovereign immunity. Any adverse or arbitrary decision of a court,
arbitrator or other governmental or regulatory body, or Entrée’s inability to enforce its contractual rights, may have a
material adverse impact on Entrée’s business, assets, prospects, financial condition and results of operation as well as the
Company’s share price.
Entrée may be subject to risks inherent in legal proceedings.
In the course of its business, Entrée may from time to time become involved in various claims, arbitration and other legal
proceedings, with and without merit. The nature and results of any such proceedings cannot be predicted with certainty.
Any potential future claims and proceedings are likely to be of a material nature. In addition, such claims, arbitration and
other legal proceedings can be lengthy and involve the incurrence of substantial costs and resources by Entrée, and the
outcome, and Entrée’s ability to enforce any ruling(s) obtained pursuant to such proceedings, are subject to inherent risk
and uncertainty. The initiation, pursuit and/or outcome of any particular claim, arbitration or legal proceeding could have
a material adverse effect on Entrée’s financial position and results of operations, and on Entrée’s business, assets and
prospects. In addition, if Entrée is unable to resolve any existing or future potential disputes and proceedings favorably, or
obtain enforcement of any favorable ruling, if any, that may be obtained pursuant to such proceedings, it is likely to have a
material adverse impact on Entrée’s business, financial condition and results of operations and Entrée’s assets and
prospects as well as the Company’s share price.
Entrée’s rights to use and access certain land area could be adversely affected by the application of Mongolia’s
Resolution 140 or Resolution 175.
In June 2010, the Government of Mongolia passed Resolution 140, the purpose of which is to authorize the designation of
certain land areas for "state special needs" within certain defined areas, some of which include or are in proximity to the
Oyu Tolgoi project. These state special needs areas are to be used for Khanbogd village development and for
infrastructure and plant facilities necessary in order to implement the development and operation of the Oyu Tolgoi
project. A portion of the Shivee Tolgoi licence is included in the land area that is subject to Resolution 140.
In June 2011, the Government of Mongolia passed Resolution 175, the purpose of which is to authorize the designation of
certain land areas for "state special needs" within certain defined areas in proximity to the Oyu Tolgoi project. These state
special needs areas are to be used for infrastructure facilities necessary in order to implement the development and
construction of the Oyu Tolgoi project. Portions of the Shivee Tolgoi and Javhlant licences are included in the land area
that is subject to Resolution 175.
It is expected but not yet formally confirmed by the Government that to the extent that a consensual access agreement
exists or is entered into between OTLLC and an affected licence holder, the application of Resolution 175 to the land area
covered by the access agreement will be unnecessary. OTLLC has existing access and surface rights to the Joint Venture
Property pursuant to the Earn-In Agreement. If Entrée is unable to reach a consensual arrangement with OTLLC with
respect to Shivee West, Entrée’s right to use and access a corridor of land included in the state special needs areas for a
proposed power line may be adversely affected by the application of Resolution 175. While the Mongolian Government
would be responsible for compensating Entrée in accordance with the mandate of Resolution 175, the amount of such
compensation is not presently quantifiable.
While the Investment Agreement contains provisions restricting the circumstances under which the Shivee Tolgoi and
Javhlant licences may be expropriated, which may make the application of Resolution 140 and Resolution 175 to the Joint
Venture Property unnecessary, there can be no assurances that the Resolutions will not be applied in a manner that has an
adverse impact on Entrée.
Changes in, or more aggressive enforcement of, laws and regulations could adversely impact Entrée’s business.
Mining operations and exploration activities are subject to extensive laws and regulations. These relate to production,
development, exploration, exports, imports, taxes and royalties, labor standards, occupational health, waste disposal,
protection and remediation of the environment, mine decommissioning and reclamation, mine safety, toxic substances,
transportation safety and emergency response and other matters.
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Compliance with these laws and regulations increases the costs of exploring, drilling, developing, constructing, operating
and closing mines and other facilities. It is possible that the costs, delays and other effects associated with these laws and
regulations may impact Entrée’s decision as to whether to continue to operate in a particular jurisdiction or whether to
proceed with exploration or development of properties. Since legal requirements change frequently, are subject to
interpretation and may be enforced to varying degrees in practice, Entrée is unable to predict the ultimate cost of
compliance with these requirements or their effect on operations. Changes in governments, regulations and policies and
practices could have an adverse impact on Entrée’s future cash flows, earnings, results of operations and financial
condition, which may have a material, adverse impact on Entrée and the Company’s share price.
Risks Associated With The Development of the Oyu Tolgoi Project
The Joint Venture Property forms part of the Oyu Tolgoi project. As a result, certain risk factors associated with the
development of the Oyu Tolgoi project are also applicable to Entrée and may adversely affect Entrée, including the
following.
There can be no assurance that Turquoise Hill will be capable of raising the additional funding that it needs to
continue the development of the Oyu Tolgoi project, including the Hugo North Extension and Heruga deposits.
Further development of the Oyu Tolgoi project depends upon Turquoise Hill’s ability to obtain a reliable source of
funding. Volatility in capital markets and commodity prices and other macroeconomic factors may adversely affect
Turquoise Hill’s ability to secure project financing. Even if macroeconomic factors are conducive to securing project
financing, there can be no assurance that final agreement with the project lenders will be reached on terms reasonably
satisfactory to Turquoise Hill and Rio Tinto or that Turquoise Hill or Rio Tinto will continue to pursue project financing
for the Oyu Tolgoi project. In addition, OTLLC operates in a region of the world that is prone to economic and political
upheaval and instability, which may make it more difficult to obtain sufficient debt financing from project lenders.
On August 12, 2013, development of the Oyu Tolgoi underground mine, including Lift 1 of the Entrée-OTLLC Joint
Venture’s Hugo North Extension deposit, was suspended until outstanding OTLLC shareholder issues could be resolved.
The parties were unable to reach agreement on outstanding shareholder issues and close project financing prior to the
March 31, 2014 expiry of the commitment letters that Rio Tinto signed with 15 global banks. On May 12, 2014, Turquoise
Hill announced that 14 of the 15 global banks participating in the Oyu Tolgoi project financing had agreed to extend their
commitment letters to September 30, 2014. On September 22, 2014, Turquoise Hill announced that the OTFS14 had been
finalized and presented to the board of directors of OTLLC. On October 2, 2014, Turquoise Hill announced that while the
extended expiry date for the commitment letters of September 30, 2014 had passed and there is ongoing engagement with
the lenders, no requests have been made to further extend the lender commitments. Turquoise Hill further stated that
underground development remains subject to: (1) successful resolution of remaining OTLLC shareholder issues, including
the tax situation; (2) agreement of a comprehensive funding plan including project finance; (3) approval of the OTFS14 by
the OTLLC shareholders and acceptance by the Mongolian Minerals Council; and (4) obtaining all necessary permits for
the Oyu Tolgoi mine’s operations and development. There can be no assurance that outstanding shareholder matters will
be resolved in a satisfactory manner, and given that the commitments from the commercial bank consortium forming part
of the proposed project financing lender group formally expired on September 30, 2014 and have not yet been renewed,
there can be no assurance that Oyu Tolgoi project financing will be available within the time frame required to permit
development of the underground mine within current cost estimates, on schedule or at all. Further, there can be no
assurance that the corporate, governmental and other approvals required to implement Oyu Tolgoi project financing will
be obtained or that, even if all such required approvals are obtained, Oyu Tolgoi project financing will be available.
The actual cost of developing the Oyu Tolgoi project may differ materially from estimates and involve unexpected
problems or delays.
Turquoise Hill’s estimates regarding the cost of development and operation of the Oyu Tolgoi project are estimates only.
The estimates and the assumptions upon which they are based are subject to a variety of risks and uncertainties and other
factors that could cause actual expenditures to differ materially from those estimated. If these estimates prove incorrect,
the total capital expenditures required to complete development of the Oyu Tolgoi project underground mine, including
the portion that Entrée is responsible for, may increase, which may have a material adverse impact on Entrée, its results of
operations, financial conditions, and the Company’s share price.
There are a number of uncertainties inherent in the development and construction of any new or existing mine, including
the Oyu Tolgoi project. These uncertainties include: the timing and cost, which can be considerable, of the construction of
mining and processing facilities; the availability and cost of skilled labor, process water, power and transportation,
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including costs of transport for the supply chain for the Oyu Tolgoi project, which requires routing approaches which have
not been fully tested; the annual usage costs to the local province for sand, aggregate and water; the availability and cost
of appropriate smelting and refining arrangements; and the need to obtain necessary environmental and other government
permits, such permits being on reasonable terms, and the timing of those permits. The cost, timing and complexities of
mine construction and development are increased by the remote location of the Oyu Tolgoi project. Mongolia’s weather
varies to the extremes, and such adverse conditions can upset programs with resultant additional costs and delays.
It is common in new mining operations and in the development or expansion of existing facilities to experience
unexpected problems and delays during development, construction and mine start-up, which may cause delays in
commencement or expansion of mineral production. In particular, funding and development of the Oyu Tolgoi project
underground mine, including the Hugo North Extension deposit and the Heruga deposit, has been delayed until matters
with the Mongolian government can be resolved and a new timetable agreed. Any of these delays could impact disclosed
project economics. Accordingly, there is no assurance that the future development, construction or expansion activities
will be successfully completed within cost estimates, on schedule or at all and, if completed, there is no assurance that
such activities will result in profitable mining operations.
The Investment Agreement includes a number of future covenants that may be outside of the control of the investors to
complete.
The Investment Agreement commits Turquoise Hill and Rio Tinto to perform many obligations in respect of the
development and operation of the Oyu Tolgoi project. While performance of many of these obligations is within the
effective control of Turquoise Hill and Rio Tinto, the scope of certain obligations may be open to interpretation. Further,
the performance of other obligations may require co-operation from third parties or may be dependent upon circumstances
that are not necessarily within the control of Turquoise Hill and Rio Tinto. Non-fulfillment of any obligation may result
in a default under the Investment Agreement. Such a default could result in a termination of the Investment Agreement,
which may have a material adverse impact on Entrée and the Company’s share price.
The Investment Agreement commits OTLLC to utilize only Mongolian power sources within four years of commencing
commercial production. Such sources of power may not be available or may be available upon commercial terms that are
less advantageous than those available from other potential power suppliers. Despite Turquoise Hill and Rio Tinto’s best
efforts, such an obligation is not necessarily within their control and non-fulfillment of such requirement may result in a
default under the Investment Agreement.
Risks Associated With the Funding Agreement
In certain circumstances the Company may be required to return a portion of the Deposit to Sandstorm.
In the event of a partial expropriation of Entrée’s economic interest, contractually or otherwise, in the Joint Venture
Property which is not reversed during the abeyance period provided for in the Funding Agreement with Sandstorm, the
Company will be required to return a pro rata portion of the Deposit (the amount of the repayment not to exceed the
amount of the Unearned Balance).
Certain events outside of Entrée’s control may be an event of default under the Funding Agreement.
If an event of default occurs under the Funding Agreement, the Company may be required to immediately pay to
Sandstorm a default fee, which it may not have sufficient funds to cover. Some potential events of default may be outside
of Entrée’s control, including a partial or full expropriation of Entrée’s economic interest, contractually or otherwise, in
the Joint Venture Property which is not reversed during the abeyance period provided for in the Funding Agreement. If an
event of default occurs and the Company is required to pay a default fee to Sandstorm, it may have a material adverse
impact on Entrée’s business, financial condition, assets and prospects, and on the Company’s share price.
Short term fluctuations in mineral prices may expose the Company to trading losses.
Under the Funding Agreement, the Company agreed to use future cash flows from its mineral property interests to
purchase and deliver metal credits to Sandstorm. The Funding Agreement does not require the Company to deliver actual
metal production, therefore the Company will have to use revenue it receives from the sale of its share of metal production
to purchase the requisite amount of metal credits for delivery to Sandstorm. To the extent metal prices on the day on
which the Company’s production is sold are different from metal prices on the day on which the Company purchases
metal credits for delivery to Sandstorm, the Company may suffer a gain or loss on the difference.
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Risks Associated With Mining
Resource and reserve estimates, including estimates for the Hugo North Extension, Heruga, Ann Mason and Blue Hill
deposits, are estimates only, and are subject to change based on a variety of factors.
The estimates of reserves and resources, including the anticipated tonnages and grades that will be achieved or the
indicated level of recovery that will be realized, are estimates only and no assurances can be given as to their accuracy.
Such estimates are, in large part, based on interpretations of geological data obtained from drill holes and other sampling
techniques, and large scale continuity and character of the deposits will only be determined once significant additional
drilling and sampling has been completed and analyzed. Actual mineralization or formations may be different from those
predicted. It may also take many years from the initial phase of drilling before production is possible, and during that time
the economic feasibility of exploiting a deposit may change. Reserve and resource estimates are materially dependent on
prevailing market prices and the cost of recovering and processing minerals at the mine site. Market fluctuations in the
price of metals or increases in the costs to recover metals may render the mining of ore reserves uneconomical and
materially adversely affect operations. Moreover, various short-term operating factors may cause a mining operation to be
unprofitable in any particular accounting period.
Prolonged declines in the market price of metals may render reserves containing relatively lower grades of mineralization
uneconomic to exploit and could reduce materially reserves and resources. Should such reductions occur, the
discontinuation of development or production might be required. The estimates of mineral reserves and resources
attributable to a specific property are based on accepted engineering and evaluation principles. The estimated amount of
contained metals in probable mineral reserves does not necessarily represent an estimate of a fair market value of the
evaluated property.
There are numerous uncertainties inherent in estimating quantities of mineral reserves and resources. The estimates in the
Company’s disclosure documents are based on various assumptions relating to commodity prices and exchange rates
during the expected life of production, mineralization, the projected cost of mining, and the results of additional planned
development work. Actual future production rates and amounts, revenues, taxes, operating expenses, environmental and
regulatory compliance expenditures, development expenditures, and recovery rates may vary substantially from those
assumed in the estimates. Any significant change in the assumptions underlying the estimates, including changes that
result from variances between projected and actual results, could result in material downward revision to current
estimates, which may have a material adverse impact on Entrée and the Company’s share price.
Mineral prices are subject to dramatic and unpredictable fluctuations.
Entrée expects to derive revenues, if any, from the extraction and sale of base and precious metals such as copper, gold,
silver and molybdenum. The price of those commodities has fluctuated widely in recent years, and is affected by
numerous factors beyond Entrée’s control, including international economic and political trends, expectations of inflation,
global and regional demand, currency exchange fluctuations, interest rates, global or regional consumptive patterns,
speculative activities, increased production due to improved extraction and production methods and economic events,
including the performance of Asia’s economies. Ongoing worldwide economic uncertainty could lead to prolonged
recessions in many markets which may, in turn, result in reduced demand for commodities, including base and precious
metals.
The effect of these factors on the price of base and precious metals, and, therefore, the economic viability of any of
Entrée’s exploration projects, cannot accurately be predicted. Should prevailing metal prices remain depressed, there may
be a curtailment or suspension of mining, development and exploration activities. Entrée would have to assess the
economic impact of any sustained lower metal prices on recoverability and, therefore, the cut-off grade and level of
reserves and resources. These factors could have an adverse impact on Entrée’s future cash flows, earnings, results of
operations, stated reserves and financial condition, which may have an adverse impact on Entrée and the Company’s share
price.
Entrée has interests in properties that are not in commercial production. There is no assurance that the existence of
any mineral reserves will be established on any of the exploration properties in commercially exploitable quantities.
Mineral reserves have been established on the Hugo North Extension deposit at Lookout Hill. Mineral resources have
been outlined on the Hugo North Extension and Heruga deposits at Lookout Hill and the Ann Mason and Blue Hill
deposits in Nevada. Unless and until mineral reserves are established in economically exploitable quantities on a deposit,
21
and the property is brought into commercial production, Entrée cannot earn any revenues from operations on that deposit
or recover all of the funds that it has expended on exploration.
Development of a mineral property is contingent upon obtaining satisfactory exploration results. Mineral exploration and
development involves substantial expenses and a high degree of risk, which even a combination of experience, knowledge
and careful evaluation may not be able to adequately mitigate. There is no assurance that commercial quantities of ore
will be discovered on any of the exploration properties in which Entrée has an interest. There is also no assurance that,
even if commercial quantities of ore are discovered, a mineral property will be brought into commercial production. The
discovery of mineral deposits is dependent upon a number of factors, not the least of which is the technical skill of the
exploration personnel involved. The commercial viability of a mineral deposit, once discovered, is also dependent upon a
number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to
infrastructure, metal prices and government regulations, including regulations relating to taxation, royalties, allowable
production, importing and exporting of minerals, and environmental protection. Most of the above factors are beyond the
control of Entrée.
The probability of an individual prospect ever having mineral reserves that meet the requirements of the definition is
extremely remote. There is no assurance that exploration properties in which Entrée has an interest contain any mineral
reserves and that funds that Entrée spends on exploration will not be lost.
There can be no assurance that Entrée or its joint venture partners will be able to obtain or maintain any required
permits.
Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local
governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine
development, mineral production, transport, export, taxation, labor standards, water rights, occupational health, waste
disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance
that Entrée or its joint venture partners will be able to obtain or maintain any of the permits required for the continued
exploration of mineral properties in which Entrée has an interest or for the construction and operation of a mine on those
properties at economically viable costs. If required permits cannot be obtained or maintained, Entrée or its joint venture
partners may be delayed or prohibited from proceeding with planned exploration or development of the mineral properties
in which Entrée has an interest and Entrée’s business could fail.
Entrée is subject to substantial environmental and other regulatory requirements and such regulations are becoming
more stringent. Non-compliance with such regulations could materially adversely affect Entrée.
Entrée’s operations are subject to environmental regulations in the various jurisdictions in which it operates. Failure to
comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder,
including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include
corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties
engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining
activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Environmental legislation is evolving in a manner which will likely require stricter standards and enforcement, increased
fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened
degree of responsibility for companies and their officers, directors and employees. There is no assurance that future
changes in environmental regulation, if any, will not adversely affect Entrée’s operations. Environmental hazards may
exist on the properties in which Entrée holds interests which are presently unknown to Entrée and which have been caused
by previous or existing third-party owners or operators of the properties. Government approvals and permits are also often
required in connection with various aspects of Entrée’s operations. To the extent that such approvals are required and not
obtained, Entrée may be delayed or prevented from proceeding with planned exploration or development of its mineral
properties, which may have a material, adverse impact on Entrée and its share price.
In Mongolia, Entrée is required to deposit 50% of its proposed reclamation budget with the local Soum Governor’s office
(a soum is the local Mongolian equivalent of a township or district) which will be refunded only on acceptable completion
of land rehabilitation after mining operations have concluded. Even if Entrée relinquishes its licences, Entrée will still
remain responsible for any required reclamation.
22
In the United States, exploration companies are required to apply to federal and state authorities for a work permit that
specifically details the proposed work program. A reclamation bond based on the amount of surface disturbance may be
requested prior to the issuance of the appropriate permit.
There can be no assurance that the interest held by Entrée in resource properties is free from defects.
While Entrée has investigated title to its mining licences and property claims, Entrée’s title to its resource properties may
be challenged by third parties or the licences that permit Entrée to explore its properties may expire if Entrée fails to
timely renew them and pay the required fees.
Entrée cannot guarantee that the rights to explore its properties will not be revoked or altered to its detriment as a result of
actions by the Mongolian Ministry of Mining, MRAM, Mongolia’s Resolution 140 and/or 175 or otherwise. The
ownership and validity of mining claims and concessions are often uncertain and may be contested.
In Mongolia, should a third party challenge to the boundaries or registration of ownership arise, the Government of
Mongolia may declare the property in question a special reserve for up to three years to allow resolution of disputes or to
clarify the accuracy of its mining licence register.
Entrée is not aware of any third party challenges to the location or area of any of the mining concessions and mining
claims in any of the jurisdictions in which it operates. There is, however, no guarantee that title to the claims and
concessions will not be challenged or impugned in the future. If Entrée fails to pay the appropriate annual fees or if
Entrée fails to timely apply for renewal, then these licences may expire or be forfeit.
If mineral reserves in commercially exploitable quantities are established on any of Entrée’s properties (other than the
Joint Venture Property), Entrée will require additional capital and may need to acquire additional lands in order to
develop the property into a producing mine. If Entrée cannot raise this additional capital or acquire additional lands,
Entrée will not be able to exploit the resource, and its business could fail.
If mineral reserves in commercially exploitable quantities are established on any of Entrée’s properties (other than the
Joint Venture Property, in which Entrée has a carried interest), Entrée will be required to expend substantial sums of
money to establish the extent of the resource, develop processes to extract it and develop extraction and processing
facilities and infrastructure. Although Entrée may derive substantial benefits from the discovery of a major deposit, there
can be no assurance that such a resource will be large enough to justify commercial operations, nor can there be any
assurance that Entrée will be able to raise the funds required for development on a timely basis. If Entrée cannot raise the
necessary capital or complete the necessary facilities and infrastructure, its business may fail.
Entrée may be required to acquire rights to additional lands in order to develop a mine if a mine cannot be properly
located on Entrée’s properties. There can be no assurance that Entrée will be able to acquire such additional lands on
commercially reasonable terms, if at all.
Mineral exploration and development is subject to extraordinary operating risks. Entrée does not currently insure
against these risks.
Mineral exploration and development involves many risks which even a combination of experience, knowledge and
careful evaluation may not be able to overcome. Entrée’s operations will be subject to all of the hazards and risks inherent
in the exploration and development of resources, including liability for pollution or hazards against which Entrée cannot
insure or against which Entrée may elect not to insure. Any such event could result in work stoppages and damage to
property, including damage to the environment. Entrée does not currently maintain any insurance coverage against these
operating hazards. The payment of any liabilities that arise from any such occurrence would have a material, adverse
impact on Entrée.
The mining industry is highly competitive and there is no assurance that Entrée will continue to be successful in
acquiring mineral claims. If Entrée cannot continue to acquire properties to explore for mineral resources, Entrée
may be required to reduce or cease operations.
The mineral exploration, development, and production industry is largely unintegrated. Entrée competes with other
exploration companies looking for mineral resource properties and the resources that can be produced from them.
23
Entrée competes with many companies possessing greater financial resources and technical facilities. This competition
could adversely affect its ability to acquire suitable prospects for exploration in the future. Accordingly, there can be no
assurance that Entrée will acquire any interest in additional mineral resource properties that might yield reserves or result
in commercial mining operations.
Risks Related To Our Company
Entrée can provide investors with no assurances that it will generate any operating revenues or ever achieve profitable
operations.
Although Entrée has been in the business of exploring mineral resource properties since 1995, Entrée has never had any
revenues from its operations. In addition, its operating history has been restricted to the acquisition and exploration of its
mineral properties. Entrée anticipates that it will continue to incur operating costs without realizing any revenues until
such time as the Joint Venture Property is brought into production. Entrée expects to continue to incur significant losses
into the foreseeable future. Entrée recognizes that if it is unable to generate significant revenues from mining operations
and any dispositions of its interests in properties, Entrée will not be able to earn profits or continue operations. Entrée can
provide investors with no assurance that it will generate any operating revenues or ever achieve profitable operations.
The fact that Entrée has not earned any operating revenues since its incorporation may impact its ability to explore
certain of its mineral properties or require that exploration be scaled back.
Entrée has not generated any revenue from operations since its incorporation. Entrée anticipates that it will continue to
incur operating expenses without revenues unless and until it is able to generate cash flows from the Entrée-OTLLC Joint
Venture or it is able to identify a mineral reserve in a commercially exploitable quantity on one or more of its mineral
properties and it builds and operates a mine. As at December 31, 2014, Entrée had working capital of approximately
$32.6 million. Entrée’s average monthly operating expenses in 2014 were approximately $1.1 million, including
exploration, general and administrative expenses and investor relations expenses. Entrée has a carried interest on all
exploration activity carried out on the Joint Venture Property and, due to the nature of Entrée’s other mineral property
interests, Entrée has the ability to alter its exploration expenditures and, to a lesser extent, its general and administrative
expenses. As a result, Entrée believes that it will not have to raise any additional funds to meet its currently budgeted
operating requirements for the next 12 months. If these funds are not sufficient, or if Entrée does not begin generating
revenues from operations sufficient to pay its operating expenses when Entrée has expended them, Entrée will be forced to
raise necessary funds from outside sources. While Entrée may be able to raise funds through strategic alliances, joint
ventures, product streaming or other arrangements, it has traditionally raised its operating capital from sales of equity, but
there can be no assurance that Entrée will continue to be able to do so. If Entrée cannot raise the money that it needs to
continue exploration of its mineral properties, there is a risk that Entrée may be forced to delay, scale back, or eliminate
certain of its exploration activities.
Recent global financial conditions may adversely impact operations and the value and price of the Company’s common
shares.
Recent global financial and market conditions have been subject to increased volatility. This increased volatility may
impact the ability of Entrée to obtain equity or debt financing in the future and, if obtained, on terms favorable to Entrée.
If these increased levels of volatility and market turmoil continue, Entrée’s operations could be adversely impacted and
the value and the price of the Company’s common shares could be adversely affected.
As a result of their existing shareholdings and OTLLC’s right of first refusal, Rio Tinto, Turquoise Hill and OTLLC
potentially have the ability to influence Entrée’s business and affairs.
Rio Tinto’s beneficial shareholdings in the Company potentially give Rio Tinto the voting power to influence the policies,
business and affairs of Entrée and the outcome of any significant corporate transaction or other matter, including a merger,
business combination or a sale of all, or substantially all, of Entrée’s assets. In addition, Rio Tinto (on behalf of OTLLC)
has operational control over the Joint Venture Property. OTLLC also has a right of first refusal with respect to any
proposed disposition by Entrée of an interest in Shivee West, which is not subject to the Entrée-OTLLC Joint Venture.
The share position in the Company of each of Turquoise Hill and Rio Tinto may have the effect of delaying, deterring or
preventing a transaction involving a change of control of the Company in favor of a third party that otherwise could result
in a premium in the market price of the Company’s common shares in the future.
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The Company’s Articles and indemnity agreements between the Company and its officers and directors indemnify its
officers and directors against costs, charges and expenses incurred by them in the performance of their duties.
The Company’s Articles contain provisions requiring the Company to indemnify Entrée’s officers and directors against all
judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or
investigative action in which such party, by reason of being a director or officer of Entrée, is or may be joined. The
Company also has indemnity agreements in place with its officers and directors. Such limitations on liability may reduce
the likelihood of derivative litigation against the Company’s officers and directors and may discourage or deter the
Company’s shareholders from suing its officers and directors based upon breaches of their duties to Entrée, though such
an action, if successful, might otherwise benefit Entrée and the Company’s shareholders.
Investors' interests in the Company will be diluted and investors may suffer dilution in their net book value per
common share if the Company issues stock options or if the Company issues additional common shares to finance its
operations.
Entrée has never generated revenue from operations, and it is currently without a source of revenue. The Company will
most likely be required to issue additional common shares to finance Entrée’s operations and, depending on the outcome
of the exploration programs, may issue additional common shares to finance additional exploration programs on any or all
of Entrée’s properties or to acquire additional properties.
The Company may also in the future grant to some or all of Entrée’s directors, officers, consultants, and employees
additional options to purchase common shares as non-cash incentives to those persons. Such options may be granted at
prices equal to market prices, or at prices as allowable under the policies of the TSX and the Company’s Stock Option
Plan, when the public market is depressed. The issuance of any equity securities could, and the issuance of any additional
common shares will, cause the Company’s existing shareholders to experience dilution of their ownership interests.
If the Company issues additional common shares, investors' interests in the Company will be diluted and investors may
suffer dilution in their net book value per common share depending on the price at which such securities are sold. As at
December 31, 2014 Entrée had outstanding options exercisable into 13,779,000 common shares which, if exercised as at
March 30, 2015 would represent approximately 8.57% of its issued and outstanding common shares. If all of these
options are exercised and the underlying common shares are issued, such issuance will cause a reduction in the
proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the market
price of the Company’s common shares.
Earnings and Dividend Record.
The Company has no earnings or dividend record. The Company has not paid dividends on its common shares since
incorporation and does not anticipate doing so in the foreseeable future. The Company’s current intention is to apply any
future net earnings to increase its working capital. Prospective investors seeking or needing dividend income or liquidity
should, therefore, not purchase the Company’s common shares. The Company currently has no revenue and a history of
losses, so there can be no assurance that the Company will ever have sufficient earnings to declare and pay dividends to
the holders of common shares.
Conflicts of Interest.
Certain of Entrée’s officers and directors may be or become associated with other natural resource companies that acquire
interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. Entrée’s
directors are required by law to act honestly and in good faith with a view to its best interests and to disclose any interest
which they may have in any of its projects or opportunities. In general, if a conflict of interest arises at a meeting of a
board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter or, if he does
vote, his vote does not count.
Dependence on Key Management Employees.
Entrée’s ability to continue its exploration and development activities and to develop a competitive edge in the
marketplace depends, in large part, on its ability to attract and maintain qualified key management personnel.
Competition for such personnel is intense, and there can be no assurance that Entrée will be able to attract and retain such
personnel. Its development now, and in the future, will depend on the efforts of key management figures. The loss of any
25
of these key people could have a material adverse effect on Entrée’s business. Entrée does not currently maintain key-
man life insurance on any of its key employees.
Fluctuations in Currency Exchange Rates.
Fluctuations in Canadian and United States currency exchange rates may significantly impact Entrée’s financial position
and results.
The Company is subject to anti-corruption legislation, including the U.S. Foreign Corrupt Practices Act.
The Company is subject to the U.S. Foreign Corrupt Practices Act and other similar legislation, such as Canada’s
Corruption of Foreign Officials Act (collectively, "Anti-Corruption Legislation"), which prohibits Entrée or any officer,
director, employee or agent of Entrée or any shareholder of the Company on its behalf from paying, offering to pay, or
authorizing the payment of anything of value to any foreign government official, government staff member, political
party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an
official capacity. Anti-Corruption Legislation also requires public companies to make and keep books and records that
accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting
controls. Entrée’s international activities create the risk of unauthorized payments or offers of payments by its employees,
consultants or agents, even though they may not always be subject to its control. Entrée prohibits these practices by its
employees and agents. However, Entrée’s existing safeguards and any future improvements may prove to be less than
effective, and its employees, consultants and agents may engage in conduct for which it might be held responsible. Any
failure by Entrée to adopt appropriate compliance procedures and ensure that its employees and agents comply with Anti-
Corruption Legislation and applicable laws and regulations in foreign jurisdictions could result in substantial penalties or
restrictions on Entrée’s ability to conduct business in certain foreign jurisdictions, which may have a material adverse
impact on Entrée and the price of the Company’s common shares.
The Company believes that it was a passive foreign investment company during 2014, which may have a material effect
on U.S. holders.
The Company believes it was a PFIC during the year ended December 31, 2014 and may be a PFIC for subsequent tax
years, which may have a material effect on U.S. Holders. United States income tax legislation contains rules governing
PFICs, which can have significant tax effects on U.S. Holders of foreign corporations. A U.S. Holder who holds stock in
a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal
income taxation under one of two alternative tax regimes at the election of each such U.S. Holder. The United States
federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of common shares will
depend on whether such U.S. Holder makes an election to treat the Company as a qualified electing fund under Section
1295 of the Code or a mark-to-market election under Section 1296 of the Code. Additional adverse rules would apply to
U.S. Holders for any year the Company is a PFIC and Entrée owns or disposes of shares in another corporation which is a
PFIC. However, U.S. shareholders should be aware that there can be no assurance that the Company will satisfy the record
keeping requirements that apply to a qualified electing fund, or that the Company will supply U.S. shareholders with
information that such U.S. shareholders require to report under the QEF election rules, in the event that the Company is a
PFIC and a U.S. shareholder wishes to make a QEF election. Thus, U.S. shareholders may not be able to make a QEF
Election with respect to their common shares.
It may be difficult to enforce judgments or bring actions outside the United States against the Company and certain of
its directors.
The Company is a Canadian corporation and certain of its directors are neither citizens nor residents of the United States.
A substantial part of the assets of several of these persons are located outside the United States. As a result, it may be
difficult or impossible for an investor: to enforce in courts outside the United States judgments obtained in United States
courts based upon the civil liability provisions of United States federal securities laws against these persons and the
Company; or to bring in courts outside the United States an original action to enforce liabilities based upon United States
federal securities laws against these persons and the Company.
Increased costs and compliance risks as a result of being a public company.
Legal, accounting and other expenses associated with public company reporting requirements have increased significantly
over time. The Company anticipates that general and administrative costs associated with regulatory compliance will
continue to increase with ongoing compliance requirements under the Sarbanes-Oxley Act of 2002, as amended
26
("Sarbanes-Oxley"), the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as any new rules
implemented by the SEC, Canadian Securities Administrators, the NYSE MKT and the TSX in the future. These rules and
regulations have significantly increased the Company’s legal and financial compliance costs and made some activities
more time-consuming and costly. There can be no assurance that the Company will continue to effectively meet all of the
requirements of these rules and regulations, including Sarbanes-Oxley Section 404, National Instrument 52-109 –
Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators ("NI 52-
109"), and the continued listing standards of the NYSE MKT and the TSX. Any failure to effectively implement internal
controls, or to resolve difficulties encountered in their implementation, could harm the Company’s operating results, cause
the Company to fail to meet reporting obligations or result in management being required to give a qualified assessment of
the Company’s internal controls over financial reporting or the Company’s independent auditors providing an adverse
opinion regarding management’s assessment. Any such result could cause investors to lose confidence in the Company’s
reported financial information, which could have a material adverse effect on the trading price of the Company’s common
shares. Any failure to comply with the continued listing standards of the NYSE MKT or the TSX, including by
maintaining a minimum listing price, could result in, among other things, the initiation of delisting proceedings. Ongoing
compliance requirements have also made it more difficult and more expensive for the Company to obtain director and
officer liability insurance, and the Company may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage in the future. As a result, it may be more difficult for the
Company to attract and retain qualified individuals to serve on its board of directors or as executive officers. If the
Company fails to maintain the adequacy of its internal control over financial reporting, the Company’s ability to provide
accurate financial statements and comply with the requirements of Sarbanes-Oxley and NI 52-109 could be impaired,
which could cause the price of the Company’s common shares to decrease.
Differences in United States and Canadian reporting of reserves and resources.
The disclosure in this Annual Report, including the documents incorporated herein by reference, uses terms that comply
with reporting standards in Canada. The terms "mineral resource", "Measured mineral resource", "Indicated mineral
resource" and "Inferred mineral resource" are defined in and required to be used by the Company pursuant to NI 43-101;
however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in
reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral
deposits in these categories will ever be converted into reserves. "Inferred mineral resources" have a great amount of
uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of
the Measured mineral resources, Indicated mineral resources, or Inferred mineral resources will ever be upgraded to a
higher category. Under Canadian rules, estimates of Inferred mineral resources may not form the basis of feasibility,
prefeasibility studies or other economic studies, except in rare cases.
Investors are cautioned not to assume that all or any part of an Inferred mineral resource exists or is economically or
legally mineable. Disclosure of "contained ounces" in a resource is permitted disclosure under Canadian regulations;
however, the SEC normally only permits issuers to report mineralization that does not constitute "reserves" by SEC
Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
Further, the terms "mineral reserve", "Proven mineral reserve" and "Probable mineral reserve" are Canadian mining terms
as defined in accordance with NI 43-101 and the CIM Standards. These definitions differ from the definitions in SEC
Industry Guide 7. Under SEC Industry Guide 7 standards, a "final" or "bankable" feasibility study is required to report
reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and all
necessary permits or governmental authorizations must be filed with the appropriate governmental authority.
Accordingly, information contained in this Annual Report and the documents incorporated by reference herein containing
descriptions of the Company’s mineral deposits may not be comparable to similar information made public by United
States companies subject to the reporting and disclosure requirements under the United States federal securities laws and
the rules and regulations thereunder.
As a "foreign private issuer", the Company is exempt from Section 14 proxy rules and Section 16 of the U.S. Exchange
Act.
The Company is a "foreign private issuer" as defined in Rule 3b-4 under the U.S. Exchange Act. Equity securities of the
Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the U.S. Exchange Act pursuant to
Rule 3a12-3 of the U.S. Exchange Act. Therefore, the Company is not required to file a Schedule 14A proxy statement in
relation to the annual meeting of shareholders. The submission of proxy and annual meeting of shareholder information on
Form 6-K may result in shareholders having less complete and timely information in connection with shareholder actions.
27
The exemption from Section 16 rules regarding reports of beneficial ownership and purchases and sales of common shares
by insiders and restrictions on insider trading in our securities may result in shareholders having less data and there being
fewer restrictions on insiders’ activities in our securities.
Item 4. Information on the Company
A.
History and Development of the Company
Entrée is an exploration stage company that also has an interest in two advanced projects. Entrée is engaged in the
exploration of mineral resource properties located in the United States, Mongolia, Peru and Australia. The Company’s
executive office is located at:
Suite 1201 - 1166 Alberni Street
Vancouver, British Columbia, Canada V6E 3Z3
Phone: 604.687.4777
Fax: 604.687.4770
Website: www.entreegold.com.
Information contained on the Company’s website does not form part of this Annual Report. The Company’s registered
and records office is located at 2900-550 Burrard Street, Vancouver, British Columbia, Canada V6C 0A3 and its agent for
service of process in the United States of America is National Registered Agents, Inc., 1090 Vermont Avenue NW, Suite
910, Washington, DC 20005.
Entrée maintains an administrative office in Golden, Colorado to support United States operations at the following
address:
Suite 210, 1111 Washington Avenue
Golden, CO 80401
Phone: 303.954.8752
Fax: 303.953.9401
Entrée maintains an administrative office in Ulaanbaatar, the capital of Mongolia, to support Mongolian operations. The
address of the Mongolian office is:
Suite 3A, Temple View Residence
Building #12, Jamyan Gun Street
Sukhbaatar District 1st County
Ulaanbaatar, Mongolia
Phone: 976.11.318562
Fax: 976.11.319426
The Company was incorporated in British Columbia, Canada, on July 19, 1995, under the name "Timpete Mining
Corporation". On February 5, 2001, the Company changed its name to "Entrée Resources Inc.". On October 9, 2002 the
Company changed its name from "Entrée Resources Inc." to "Entrée Gold Inc." and, on January 22, 2003, changed its
jurisdiction of domicile from British Columbia to the Yukon Territory by continuing into the Yukon Territory. On May
27, 2005, the Company changed the governing jurisdiction from the Yukon Territory to British Columbia by continuing
into British Columbia under the Business Corporation Act (British Columbia) (the "BCBCA").
At inception the Company’s Memorandum and Articles authorized it to issue up to 20 million common shares without par
value. On September 30, 1997, the Company subdivided its authorized capital on a two new shares for one old share
basis, resulting in authorized capital of 40 million common shares without par value. On February 5, 2001, the Company
subdivided its common shares on a four new shares for one old share basis, thus increasing its authorized capital to 160
million common shares without par value and simultaneously reduced its authorized capital to 100 million common shares
without par value. On October 9, 2002 the Company consolidated its authorized capital, both issued and unissued, on the
basis of one new share for each two old shares, resulting in authorized capital of 50 million common shares without par
value and simultaneously increased the authorized capital from 50 million common shares without par value to 100
million common shares without par value. On May 20, 2004, the Company received approval from its shareholders to
increase its authorized share capital from 100 million common shares without par value to an unlimited number of
common shares, all without par value. This increase became effective June 16, 2004, the date the Company filed the
amendment to its Articles.
28
At the Company’s Annual General Meeting of shareholders held on June 27, 2013, shareholders confirmed the alteration
of the Company’s Articles by the addition of advance notice provisions as Part 14B (the "Advance Notice Provisions").
The Advance Notice Provisions provide shareholders, directors and management of the Company with a clear framework
for nominating directors of the Company. Only persons who are eligible under the BCBCA and who are nominated in
accordance with the following procedures set forth in the Advance Notice Provisions shall be eligible for election as
directors of the Company. At any annual general meeting of shareholders, or at any special meeting of shareholders if one
of the purposes for which the special meeting was called is the election of directors, nominations of persons for election to
the Company’s board of directors (the "Board") may be made only: (a) by or at the direction of the Board, including
pursuant to a notice of meeting; (b) by or at the direction or request of one or more shareholders pursuant to a "proposal"
made in accordance with Part 5, Division 7 of the BCBCA, or pursuant to a requisition of the shareholders made in
accordance with section 167 of the BCBCA; or (c) by any person (a "Nominating Shareholder"): (A) who, at the close of
business on the date of the giving by the Nominating Shareholder of the notice provided for in the Advance Notice
Provisions and at the close of business on the record date for notice of such meeting, is entered in the securities register of
the Company as a holder of one or more shares carrying the right to vote at such meeting or who beneficially owns shares
that are entitled to be voted at such meeting and provides evidence of such ownership that is satisfactory to the Company,
acting reasonably; and (B) who complies with the notice procedures set forth in the Advance Notice Provisions.
The Company’s common shares traded on the TSX Venture Exchange until April 24, 2006. On April 24, 2006, the
Company’s common shares began trading on the Toronto Stock Exchange ("TSX") under the symbol "ETG". The
Company’s common shares also trade on NYSE MKT under the symbol "EGI" and on the Frankfurt Stock Exchange
under the symbol "EKA".
29
Intercorporate Relationships
We conduct our business and own our property interests through the 11 subsidiaries set out in our organizational chart
below. All of our subsidiaries are 100% owned.
Entrée International Holdings Inc.
(Barbados)
Entrée Peru Holdings Inc.
(Barbados)
Exploraciones Apolo Resources
S.A.C. (Peru)
(99.99%)*
Red Gold
Australia Pty Ltd
(Australia)
Entrée U.S. Holdings
Inc. (British
Columbia)
Beijing Entrée
Mineral
Technology
Company Ltd.
(China)
Entrée Gold
Inc.
(British
Columbia)
Entrée Gold (US) Inc.
(Arizona)**
M.I.M. (U.S.A.) Inc.
(Delaware)**
Entree Resources International Ltd.
(British Columbia)
Entrée LLC
(Mongolia)***
Entrée Resources LLC
(Mongolia)
*The remaining 0.01% is held by Entrée Resources International Ltd.
**M.I.M. (U.S.A.) Inc. and Entrée Gold (US) Inc. hold the Ann Mason Project lode claims in Nevada, United States. For
details regarding Entrée’s interest in the Ann Mason Project, see "Item C. Property, Plants and Equipment – United States
– Ann Mason Project" below.
30
***Entrée LLC holds the Shivee Tolgoi and Javhlant mining licences in Mongolia. A portion of the Shivee Tolgoi mining
licence area and all of the Javhlant mining licence area are subject to a joint venture with Oyu Tolgoi LLC. Oyu Tolgoi
LLC is owned as to 66% by Turquoise Hill Resources Ltd., and as to 34% by the Government of Mongolia (through
Erdenes Oyu Tolgoi LLC). See "B. Business Overview" below.
General Development of the Business
Entrée is an exploration stage resource company engaged in exploring and developing mineral resource properties. We
have interests in exploration and advanced properties in the United States, Mongolia Australia and Peru. Our two
principal assets are our Ann Mason copper-molybdenum project in Nevada (the "Ann Mason Project") and our interest in
the Lookout Hill property in Mongolia.
The Ann Mason Project includes the Ann Mason copper-molybdenum deposit and the Blue Hill copper deposit, which
host Indicated (Ann Mason) and Inferred mineral resources. The Company reported the results of the Ann Mason deposit
PEA on October 24, 2012.
The Lookout Hill property includes the Hugo North Extension copper-gold deposit and the Heruga copper-gold-
molybdenum deposit. The resources at Hugo North Extension include a Probable reserve, which is included in the first
lift ("Lift 1") of the Oyu Tolgoi underground block cave mining operation. Lift 1 is scheduled to generate first
development production in 2020, although underground development at Oyu Tolgoi is currently halted. A second lift
("Lift 2") for the Oyu Tolgoi underground block cave operation, including additional resources from Hugo North
Extension, has been proposed but has not yet been modeled within the existing mine plan.
If, from time to time, Entrée becomes aware of properties that are complementary to its existing projects, particularly large
tonnage base and precious metal targets (or smaller, higher grade bodies that may be indicative of concealed larger
tonnage mineralized systems), it may negotiate and enter into agreements to acquire them. The commodities that Entrée is
most likely to pursue include copper, gold and molybdenum, which are often associated with large tonnage, porphyry
related environments. Smaller, higher grade systems will be considered by Entrée if they demonstrate potential for near-
term production and cash-flow.
Three Year History
Over the last three completed financial years, Entrée continued to acquire key claims within and contiguous to the
boundaries of its Ann Mason Project in the Yerington copper camp, Nevada. In August 2014, Entrée commenced
prefeasibility drilling at its Ann Mason Project. The infill drill program was completed at the end of January 2015, and
comprised 40 holes and a total of approximately 19,265 metres of combined RC pre-collars and core. The work is
designed to upgrade the mineral resources contained in the PEA Phase 5 pit from Indicated and Inferred to a mix of
mainly Measured and Indicated categories. Over the last three completed financial years, Entrée has also engaged in
discussions with Oyu Tolgoi stakeholders regarding issues arising from Entrée’s exclusion from the 2009 Oyu Tolgoi
Investment Agreement.
The following is a timeline summarizing the general development of Entrée’s business over the last three completed
financial years:
January 2012 –
September 2014
January 2012
February 2012
March 2012
Through a combination of staking and purchase agreements, Entrée acquires additional key
ground within and contiguous to the boundaries of the Ann Mason Project.
The Company announces the final results of its drilling program at Shivee West, Mongolia,
which targeted near-surface epithermal gold mineralization. A new gold zone (Argo Zone)
was discovered 250 metres beyond the previously known area of gold mineralization (Zone
III).
The Company announces it has retained the services of AGP Mining Consultants Inc. to
begin preparation of the PEA of the Ann Mason deposit in Nevada. A program to re-assay
portions of the Anaconda historical core to provide additional gold, silver and molybdenum
data is also underway.
The Company announces the release of an updated mineral resource estimate for the Ann
Mason deposit, which converts a large percentage of the previous Inferred mineral resources
to the Indicated category and expands the overall size of the deposit.
The Company announces that it has filed an updated technical report on the Lookout Hill
property, which discusses the impact on the Hugo North Extension and Heruga deposits of
31
April 2012
June 2012
October 2012
November 2012
January 2013
February 2013
March 2013
April 2013
June 2013
July 2013
Oyu Tolgoi LLC’s updated mine plan for the reserve case.
Turquoise Hill Resources Ltd. and Rio Tinto International Holdings Limited sign a
Memorandum of Understanding which establishes Rio Tinto International Holdings
Limited’s support for a series of funding measures expected to cover all projected capital
requirements for the Oyu Tolgoi project for the next 4-5 years. Rio Tinto International
Holdings Limited also assumes responsibility for the management of all exploration work on
the Lookout Hill joint venture property.
Entrée mobilizes a field crew to Mongolia to focus on geological mapping, excavator
trenching and sampling in the Zone III, Argo Zone and Khoyor Mod areas.
Turquoise Hill Resources Ltd. announces that phase 1 construction of the Oyu Tolgoi
project is 90% complete and that first development ore has been delivered to the crusher.
Mr. Gorden Glenn joins the Board. Mr. Glenn has over 20 years of mining exploration and
investment banking experience.
The Company announces the results of its PEA on the Ann Mason deposit, which will assist
Entrée in advancing the Ann Mason Project towards development.
The Company announces the first resource estimate for the Blue Hill copper deposit, located
1.5 kilometres northwest of the Ann Mason deposit.
Oyu Tolgoi LLC announces that a power supply deal for the Oyu Tolgoi project has been
finalized. This allows Oyu Tolgoi LLC to complete commissioning of the ore-processing
equipment on December 27, 2012, leading to the first production of copper-gold concentrate
from Oyu Tolgoi LLC’s Southern Oyu open pits. Phase 1 construction is essentially
complete.
First ore from the first phase of the Oyu Tolgoi project (Oyu Tolgoi LLC’s Southern Oyu
open pits) is processed through the concentrator, followed shortly by production of the first
copper-gold concentrate.
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.
The Company closes its private placement of 17,857,142 common shares at a price of
C$0.56 per common share to Sandstorm Gold Ltd.
The Company announces that it has filed an updated technical report on the Lookout Hill
property, which discusses the impact on the Hugo North Extension and Heruga deposits of
Oyu Tolgoi LLC’s updated mine plan for the Reserve Case.
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 Resources Ltd. reports that Rio Tinto has signed commitment letters with 15
global banks that lock in pricing and terms for long-term project financing for underground
development at Oyu Tolgoi.
The Rt. Honourable Lord Howard of Lympne succeeds James Harris as non-executive
Chairman of the Company’s Board of Directors. Mr. Harris assumes the role of non-
executive Deputy Chairman.
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.
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
Resources Ltd. announces that funding and development of the Oyu Tolgoi underground
will be delayed until all matters with the Mongolian Government can be resolved and a new
timetable has been agreed.
32
August 2013
September 2013
October 2013
June 2014
July 2014
September 2014
November 2014
Development of the Oyu Tolgoi underground is suspended pending the resolution of
outstanding Oyu Tolgoi LLC shareholder issues.
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.
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. Entrée
continues discussions with Oyu Tolgoi stakeholders, including the Government of
Mongolia, regarding issues arising from Entrée’s exclusion from the 2009 Oyu Tolgoi
Investment Agreement.
Turquoise Hill Resources Ltd. reports that Oyu Tolgoi LLC has received an audit report
from the Mongolian Tax Authority claiming unpaid taxes, penalties and disallowed
entitlements associated with the initial development of the Oyu Tolgoi mine. Turquoise Hill
Resources Ltd. states that it strongly disagrees with the claims and advises that shareholder
issues, including tax claims, must be resolved before further investment in the underground
can proceed.
Entrée commences prefeasibility drilling at its Ann Mason Project in Nevada. The drill
program is designed to upgrade the mineral resources contained in the PEA Phase 5 pit from
Indicated and Inferred to a mix of Measured and Indicated categories.
Turquoise Hill Resources Ltd. announces that the 2014 Oyu Tolgoi Feasibility Study has
been finalized and presented to the board of directors of Oyu Tolgoi LLC. The 2014 Oyu
Tolgoi Feasibility Study updates the reserve case reported in Entrée’s March 2013 technical
report. The 2014 Oyu Tolgoi Feasibility Study also discusses several alternative production
cases that would include Indicated and Inferred resources at Hugo North Extension and
Inferred resources at Heruga, and allow for continuous improvement in plant throughput and
potential plant expansions up to 350 thousand tonnes per day. The 2014 Oyu Tolgoi
Feasibility Study requires approval of Oyu Tolgoi LLC shareholders and the Mongolian
Minerals Council.
The lender commitments for project financing for the Oyu Tolgoi mine expire.
Entrée reports on changes and impacts specific to the Entrée-Oyu Tolgoi LLC joint venture
resulting from the technical report filed by Turquoise Hill Resources Ltd. relating to the Oyu
Tolgoi project.
B.
Business Overview
Mineral Exploration Business
Entrée is in the mineral resource business. This business generally consists of three stages: exploration, development and
production. Mineral resource companies that are in the exploration stage have not yet found mineral resources in
commercially exploitable quantities, and are engaged in exploring land in an effort to discover them. Mineral resource
companies that have located mineral resources in commercially exploitable quantities and are preparing to extract them
are in the development stage, and the properties are referred to as being "advanced". Companies engaged in the extraction
of those mineral resources are in the production stage. The Company is in the exploration stage, but has an interest in two
advanced properties.
Mineral resource exploration can consist of several stages. The earliest stage usually consists of the identification of a
potential prospect through either the discovery of a mineralized showing on that property or as the result of a property
being in proximity to another property on which exploitable resources have been identified, whether or not they are or
have in the past been extracted.
After the identification of a property as a potential prospect, the next stage would usually be the acquisition of a right to
explore the area for mineral resources. This can consist of the outright acquisition of the land and mineral rights or the
acquisition of specific, but limited mineral rights to the land (e.g. a licence, lease or concession). After acquisition,
exploration typically begins with a surface examination by a professional geologist with the aim of identifying areas of
potential mineralization, followed by detailed sampling and mapping of rock exposures along with possible geophysical
33
and geochemical grid surveys over un-exposed portions of the property (i.e. underground), and possibly trenching in these
covered areas to allow sampling of the underlying rock. Exploration also commonly includes systematic regularly-spaced
drilling in order to determine the extent and grade of the mineralized system at depth and over a given area, and in
sufficiently-advanced properties, gaining underground access by ramping or shafting in order to obtain bulk samples that
would allow one to determine the ability to recover various commodities from the rock.
A mineral resource may be identified and estimated through detailed exploration, drilling and sampling to establish
geological and grade continuity followed by a geostatistical analysis of the data. The results are supported by a technical
report prepared in accordance with NI 43-101. A mineral resource company may then choose to have a PEA prepared,
based on the mineral resource estimate.
Once exploration is sufficiently advanced, and if the resource estimate is of sufficient quality (i.e. with mineralization
classified in the Indicated and/or Measured categories), the next step would be to undertake a prefeasibility study followed
by a feasibility study.
Business of Entrée
Entrée’s two principal assets are the Ann Mason copper-molybdenum project in Nevada, and Entrée’s interest in the
Lookout Hill property in Mongolia, which hosts a copper-gold porphyry system.
The Ann Mason Project in Nevada includes the 100% owned Ann Mason and Blue Hill deposits, as well as the Blackjack
IP, Blackjack Oxide and Roulette targets, and the Minnesota, Shamrock and Ann South copper skarn targets. A map
which shows the Ann Mason Project location and more information about the Ann Mason Project are provided in "Item C.
– Property, Plants and Equipment" below.
The Lookout Hill property in Mongolia is comprised of two mining licences: Shivee Tolgoi and Javhlant. The Shivee
Tolgoi and Javhlant mining licences completely surround Oyu Tolgoi LLC’s Oyu Tolgoi mining licence, and host the
Hugo North Extension copper-gold deposit and the Heruga copper-gold-molybdenum deposit. These deposits are located
within a land area subject to a joint venture between Entrée and Oyu Tolgoi LLC (the "Entrée-OTLLC Joint Venture").
A map that illustrates the areas of Lookout Hill more clearly and further details regarding the Lookout Hill property in
Mongolia are provided in Figure 1 and in "Item C. – Property, Plants and Equipment" below.
Aside from its two principal assets, Entrée has interests in exploration properties in the United States, Australia and Peru.
See "Item C. – Property, Plants and Equipment" below for more information.
Entrée’s exploration activities are under the supervision of Robert Cann, M.Sc., P.Geo., Entrée's Vice President,
Exploration. Mr. Cann is a QP as defined in NI 43-101. Unless otherwise noted herein, Mr. Cann has approved all
scientific and technical information in this Annual Report.
All rock samples from our Mongolian properties have been prepared and analyzed by SGS Mongolia LLC or Actlabs Asia
LLC in Ulaanbaatar, Mongolia. Samples from Nevada have been prepared and analyzed at: Skyline Assayers and
Laboratories, in Tucson, Arizona and Sparks, Nevada; at Acme Analytical Laboratories, in Elko and Reno, Nevada and
Vancouver, British Columbia; and at ALS Chemex, in Sparks, Nevada and Vancouver, British Columbia.
Turquoise Hill, Rio Tinto and OTLLC
In October 2004, the Company entered into an arm’s-length Equity Participation and Earn-In Agreement (the "Earn-In
Agreement") with Turquoise Hill Resources Ltd. (together with its wholly-owned subsidiaries, "Turquoise Hill"). Under
the Earn-In Agreement, Turquoise Hill agreed to purchase equity securities of the Company, and was granted the right to
earn an interest in a 39,807 hectare portion of the Lookout Hill property comprising the eastern portion of the Shivee
Tolgoi, and all of the Javhlant mining licence (the "Joint Venture Property"). Most of Turquoise Hill’s rights and
obligations under the Earn-In Agreement were subsequently assigned by it to what was then its wholly-owned subsidiary,
Oyu Tolgoi LLC ("OTLLC"). OTLLC is also the title holder of the Oyu Tolgoi mining licence located adjacent to, and
surrounded by, the Lookout Hill property.
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Figure 1 – Lookout Hill Property
As part of its earn-in obligations under the Earn-In Agreement, OTLLC undertook an exploration program which
established the presence of two significant deposits on the Joint Venture Property: the Hugo North Extension deposit and
the Heruga deposit. These deposits form the northernmost and southernmost parts of the Oyu Tolgoi project, which is a
series of deposits containing copper, gold, silver and molybdenum. The deposits stretch over 12 kilometres, from the
Hugo North Extension deposit on the Joint Venture Property in the north, through the Hugo North and Hugo South
deposits and Southern Oyu deposits on OTLLC’s Oyu Tolgoi licence, to the Heruga deposit on the Joint Venture Property
in the south (Figure 2). The Hugo North Extension deposit is within the Shivee Tolgoi mining licence and the Heruga
deposit is within the Javhlant mining licence.
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Figure 2 - Idealized Profile (Long Section) of Heruga, Southern Oyu and Hugo Dummett Deposits (Section Looking
West)
Additional information regarding the Joint Venture Property is discussed under "Item C. – Property, Plants and
Equipment" below.
On June 30, 2008, OTLLC gave notice to Entrée that it had completed its earn-in obligations by expending a total of $35
million on exploration on the Joint Venture Property. As a consequence, 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. The Earn-In Agreement provides that at
such time as OTLLC completes its earn-in obligations, the parties will enter into a joint venture agreement in the form
attached to the Earn-In Agreement. While the parties have not formally executed the joint venture agreement, the Entrée-
OTLLC Joint Venture is operating under those terms.
Under the terms of the Entrée-OTLLC Joint Venture, Entrée elected to have OTLLC debt finance Entrée’s share of costs
with interest accruing at OTLLC’s actual cost of capital or prime plus 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. Such amounts will be applied first to payment of accrued interest and then to
repayment of principal. 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 operations for the month. The debt financing and repayment provisions limit dilution of
Entrée’s interest as the project progresses. Since formation, and as of December 31, 2014, the Entrée-OTLLC Joint
Venture has expended $26.9 million to advance the Joint Venture Property. As of December 31, 2014, OTLLC has
contributed on Entrée’s behalf the required cash participation amount, including interest at prime plus 2%, of $6.4 million,
equal to 20% of the $26.9 million incurred to date.
OTLLC is appointed manager under the terms of the Entrée-OTLLC Joint Venture, and as such has certain powers and
duties, including the duty to cure title defects, the duty to prosecute and defend all litigation or administrative proceedings
arising out of operations, and the duty to do all acts reasonably necessary to maintain the Joint Venture Property assets,
including the mining licences.
At December 31, 2014, Turquoise Hill owned approximately 9.4% of the Company’s issued and outstanding common
shares acquired pursuant to the Earn-In Agreement.
Investment by Rio Tinto in Entrée and Turquoise Hill
In June 2005, following the announcement in May 2005 of the discovery of high grade mineralization at Hugo North
Extension, Rio Tinto plc (together with its wholly-owned subsidiaries, "Rio Tinto") indirectly took part in a private
placement in the Company and became its then largest shareholder.
Following Rio Tinto’s investment in the Company in June 2005, Rio Tinto acquired, through a series of transactions,
approximately 49% of Turquoise Hill’s issued and outstanding shares. On January 24, 2012, Rio Tinto announced that it
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had increased its ownership interest in Turquoise Hill to 51%. At that time, Rio Tinto was deemed to have acquired
beneficial ownership over the common shares of the Company owned by Turquoise Hill. At December 31, 2014, Rio
Tinto directly owned approximately 11.3% of the Company’s issued and outstanding common shares. When combined
with the common shares owned by Turquoise Hill, at December 31, 2014 Rio Tinto beneficially owned approximately
20.7% of the Company’s issued and outstanding common shares.
Execution of Investment Agreement, Heads of Agreement and Memorandum of Agreement
The Minerals Law of Mongolia, which became effective on August 26, 2006, defines a mineral deposit of strategic
importance (a "Strategic Deposit") as a mineral resource that may have the potential to impact national security, or the
economic and social development of the country, or that is generating or has the potential to generate more than five
percent (5%) of Mongolia’s gross domestic product in any given year. Under Resolution No 57 dated July 16, 2009 of the
State Great Khural, the Oyu Tolgoi series of deposits were declared to be Strategic Deposits.
The Minerals Law of Mongolia provides that the State may be an equity participant with any private legal entity, up to a
34% equity interest, in the exploitation of any Strategic Deposit where the quantity and grade of the deposit have been
defined by exploration that has not been funded from the State budget. On October 6, 2009, Turquoise Hill, its wholly-
owned subsidiary OTLLC, and Rio Tinto signed an investment agreement (the "Investment Agreement") with the
Mongolian Government, which regulates the relationship among the parties and stabilizes the long term tax, legal, fiscal,
regulatory and operating environment to support the development of the Oyu Tolgoi project. The Investment Agreement
specifies that the Government of Mongolia will own 34% of the shares of OTLLC (and by extension, 34% of OTLLC’s
interest in the Joint Venture Property) through its subsidiary Erdenes Oyu Tolgoi LLC. A shareholders’ agreement was
concurrently executed to establish the Government’s 34% ownership interest in OTLLC and to govern the relationship
among the parties.
On December 8, 2010, Rio Tinto and Turquoise Hill entered into a Heads of Agreement (the "Heads of Agreement"),
which provides for the management structure of OTLLC and the project management structure of the Oyu Tolgoi project,
among other things. Under the Heads of Agreement, Rio Tinto is entitled to appoint three of the nine directors of OTLLC
(with Turquoise Hill appointing three and Erdenes Oyu Tolgoi LLC appointing three (as directed within the Amended and
Restated Shareholders Agreement among the parties (the "Shareholders Agreement") dated June 8, 2011)) and Rio Tinto
assumes management of the building and operation of the Oyu Tolgoi project, which includes the Heruga and Hugo North
Extension deposits on the Joint Venture Property.
On April 18, 2012, Rio Tinto announced that it had signed a memorandum of agreement (the "MOA") with Turquoise Hill
under which Rio Tinto agrees to support and provide certain elements of a comprehensive funding package that will
underpin the development of the Oyu Tolgoi project. In accordance with the MOA, Rio Tinto assumed responsibility for
all exploration operations on behalf of OTLLC, including exploration on the Joint Venture Property.
Oyu Tolgoi Development and Funding
As reported by Turquoise Hill, overall construction of the first phase of the Oyu Tolgoi project (OTLLC’s Southern Oyu
open pits) was essentially complete at the end of 2012. First ore was processed through the concentrator on January 2,
2013 and production of the first copper-gold concentrate followed on January 31, 2013. The first shipment of copper
concentrate was sent to customers in China on July 9, 2013. On October 14, 2013, Turquoise Hill reported that the
concentrator was operating at name-plate capacity of approximately 100,000 tonnes of ore processed per day. On January
19, 2015, Turquoise Hill announced that Oyu Tolgoi had produced 148,400 tonnes of copper in concentrate and 589,000
ounces of gold in concentrate during 2014 and is expected to produce between 175,000 and 195,000 tonnes of copper in
concentrates and 600,000 to 700,000 ounces of gold in concentrates in 2015.
As reported by Turquoise Hill, on April 17, 2013, Rio Tinto signed commitment letters with 15 global banks that locked
in pricing and terms for long-term project financing for Oyu Tolgoi. On July 28, 2013, Turquoise Hill announced that it
had received notification from the Government of Mongolia that project financing for Oyu Tolgoi would require approval
by the Mongolian Parliament, and as a consequence, funding and development of the Oyu Tolgoi underground mine
would be delayed until matters with the Mongolian Government could be resolved and a new timetable agreed. This
followed an earlier announcement that a number of substantive issues had been raised by the Government of Mongolia
relating to implementation of the Investment Agreement and Shareholders’ Agreement, including Oyu Tolgoi project
development and costs, operating budget, project financing, management fees and governance. On August 12, 2013,
development of the Oyu Tolgoi underground mine was suspended pending the resolution of outstanding OTLLC
shareholder issues. The commitments from the global banks formally expired on September 30, 2014.
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On September 22, 2014, Turquoise Hill announced that the 2014 Oyu Tolgoi Feasibility Study ("OTFS14") had been
finalized and presented to the board of directors of OTLLC. The OTFS14 contains two production cases – the 2014
Reserve Case and the 2014 Life of Mine (LOM) Case. The OTFS14 is subject to approval by OTLLC’s shareholders and
the Mongolian Minerals Council.
On November 10, 2014, Turquoise Hill announced that it continues to engage with the proposed project financing lender
group and has kept both the international financial institutions and the commercial banks informed of the status of
discussions with the Government of Mongolia. Timing of any lender commitment extension requests will be determined
when definitive progress or resolution has been made on the shareholder matters. The lending group continues to be
supportive of Oyu Tolgoi project finance and current indications are that a suitable project financing package would be
available upon resolution of the shareholder matters; however this is not guaranteed. Turquoise Hill further stated that
underground development remains subject to: (1) successful resolution of the mine’s shareholder issues; (2) agreement of
a comprehensive funding plan including project finance; (3) approval of the OTFS14 by the OTLLC shareholders and
acceptance by the Mongolian Minerals Council; and (4) obtaining all necessary permits for the mine’s operations and
development.
Investment Agreement and the Mongolian Government
On October 15, 2012, Turquoise Hill announced that it, along with OTLLC and Rio Tinto, had rejected a request from the
Mongolia Ministry of Mining to renegotiate the Investment Agreement. This followed re-affirmation by the Mongolian
Government in October 2011 that the Investment Agreement was signed in full compliance with all laws and regulations
of Mongolia.
In early 2013, Turquoise Hill announced that a number of substantive issues had been raised by the Government of
Mongolia relating to implementation of the Investment Agreement and Shareholders’ Agreement, including Oyu Tolgoi
project development and costs, operating budget, project financing, management fees and governance. On August 12,
2013, development of the Oyu Tolgoi underground mine was suspended pending the resolution of outstanding OTLLC
shareholder issues.
On June 23, 2014, Turquoise Hill announced that OTLLC had received an audit report from the Mongolian Tax Authority
claiming unpaid taxes, penalties and disallowed entitlements associated with the initial development of the Oyu Tolgoi
mine. Turquoise Hill advised that any element of the claim that amounts to a breach of the tax stabilization provisions of
the Investment Agreement will trigger the dispute resolution process outlined in the Investment Agreement. On June 25,
2014, Turquoise Hill confirmed that OTLLC has paid all taxes and charges as required under the Investment Agreement.
Turquoise Hill has reported that given the nature of the tax assessment and the breaches of the Investment Agreement, two
formal dispute resolution processes have been undertaken. First, OTLLC has given formal notice to the Government of
Mongolia of a dispute under the Investment Agreement. The Investment Agreement provides that if the parties are unable
to reach a resolution during a 60-day negotiation period, the dispute can be referred to international arbitration. Although
the notice period has been completed, OTLLC has reserved its rights to commence a formal international arbitration
proceeding. Secondly, OTLLC appealed the assessment to the Tax Dispute Resolution Council of the General Taxation
Authority of Mongolia. On September 22, 2014, Turquoise Hill announced that while the Tax Dispute Resolution Council
issued a ruling that reduced the amount of tax, interest and penalties claimed to be payable by OTLLC, from
approximately $127 million to approximately $30 million, there are aspects of the ruling that require further clarification.
In October 2014, OTLLC submitted an appeal of the outcome from the Tax Dispute Resolution Council to the
Administrative Appellate Court. On November 10, 2014, Turquoise Hill reported that OTLLC maintains that certain items
remaining under dispute are breaches of the Investment Agreement and it has reserved its rights to dispute these breaches
under the process outlined in the Investment Agreement.
On November 10, 2014, Turquoise Hill reported that it and Rio Tinto have made an offer to the Government of Mongolia
to resolve the shareholder matters in a manner which Turquoise Hill believes is beneficial to all stakeholders. Upon
successful resolution of shareholder matters, Turquoise Hill and Rio Tinto intend to formalize the agreement between the
parties, which will be in alignment and accordance with the Investment Agreement and the Shareholders’ Agreement.
Investment Agreement and Entrée
The contract area defined in the Investment Agreement includes the Javhlant and Shivee Tolgoi mining licences, including
Shivee West which is 100% owned by Entrée and not currently subject to the Entrée-OTLLC Joint Venture. The
conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent
38
to the Investment Agreement coming into effect. The Shivee Tolgoi and Javhlant mining licences were issued on October
27, 2009, and the Investment Agreement took legal effect on March 31, 2010.
The Ministry of Mining has advised Entrée that it considers the deposits on the Joint Venture Property to be part of the
series of Oyu Tolgoi deposits, which were declared to be Strategic Deposits under Resolution No 57 dated July 16, 2009
of the State Great Khural. However, at the time of negotiation of the Investment Agreement, Entrée was not made a party
to the Investment Agreement, and as such does not have any direct rights or benefits under the Investment Agreement.
OTLLC agreed, under the terms of the Earn-In Agreement, to use its best efforts to cause Entrée to be brought within the
ambit of, made subject to and to be entitled to the benefits of the Investment Agreement or a separate stability agreement
on substantially similar terms to the Investment Agreement. Entrée has been in discussions with stakeholders of the Oyu
Tolgoi project, including the Government of Mongolia, OTLLC, Erdenes Oyu Tolgoi LLC, Turquoise Hill and Rio Tinto,
since February 2013. The discussions to date have focused on issues arising from Entrée’s exclusion from the Investment
Agreement, including the fact that the Government of Mongolia does not have a full 34% interest in the Joint Venture
Property; the fact that the mining licences integral to future underground operations are held by more than one corporate
entity; and the fact that Entrée does not benefit from the stability that it would otherwise have if it were a party to the
Investment Agreement. In order to receive the benefits of the Investment Agreement, the Government of Mongolia may
require Entrée to agree to certain concessions, including with respect to the ownership of the Entrée-OTLLC Joint
Venture, Entrée LLC or the economic benefit of Entrée’s interest in the Joint Venture Property, or the royalty rates
applicable to Entrée’s share of the Joint Venture Property mineralization. No agreements have been finalized.
Joint Venture Property and the Mongolian Government
In June 2010, the Government of Mongolia passed Resolution 140, the purpose of which is to authorize the designation of
certain land areas for "state special needs" within certain defined areas, some of which include or are in proximity to the
Oyu Tolgoi project. These state special needs areas are to be used for Khanbogd village development and for
infrastructure and plant facilities necessary in order to implement the development and operation of the Oyu Tolgoi
project. A portion of the Shivee Tolgoi licence is included in the land area that is subject to Resolution 140.
In June 2011, the Government of Mongolia passed Resolution 175, the purpose of which is to authorize the designation of
certain land areas for "state special needs" within certain defined areas in proximity to the Oyu Tolgoi project. These state
special needs areas are to be used for infrastructure facilities necessary in order to implement the development and
construction of the Oyu Tolgoi project. Portions of the Shivee Tolgoi and Javhlant licences are included in the land area
that is subject to Resolution 175.
It is expected, but not yet formally confirmed by the Government, that to the extent that a consensual access agreement
exists or is entered into between OTLLC and an affected licence holder, the application of Resolution 175 to the land area
covered by the access agreement will be unnecessary. OTLLC has existing access and surface rights to the Joint Venture
Property pursuant to the Earn-In Agreement. If Entrée is unable to reach a consensual arrangement with OTLLC with
respect to Shivee West, Entrée’s right to use and access a corridor of land included in the state special needs areas for a
proposed power line may be adversely affected by the application of Resolution 175. While the Mongolian Government
would be responsible for compensating Entrée in accordance with the mandate of Resolution 175, the amount of such
compensation is not presently quantifiable.
The Investment Agreement contains provisions restricting the circumstances under which the Shivee Tolgoi and Javhlant
licences may be expropriated. As a result, Entrée considers that the application of Resolution 140 and Resolution 175 to
the Joint Venture Property will likely be considered unnecessary.
On February 27, 2013, notice (the "Notice") was delivered to Entrée by the Mineral Resources Authority of Mongolia
("MRAM") that by Order No. 43 dated February 22, 2013, the Ministry of Mining has cancelled the July 10, 2009 Order
of the Ministry of Mineral Resources and Energy (the "2009 Order") registering the Hugo Dummett (including the Hugo
North Extension) and Heruga reserves. The Notice states that the 2009 Order breached Clause 48.4 of the Minerals Law
of Mongolia and Clause 9 of the Charter of the Minerals Resource Council. The Notice further advises that any transfer,
sale or lease of the Shivee Tolgoi and Javhlant mining licences is temporarily restricted. On September 4, 2013, the
Minister of Mining issued Order No. 179, advising the Minerals Professional Council to re-submit its previous
conclusions regarding the reserves to MRAM for review and registration. On September 6, 2013, the head of MRAM
ordered that the Hugo Dummett (including the Hugo North Extension) and Heruga reserves be registered. Entrée was also
subsequently advised that the temporary transfer restriction on the joint venture mining licences will be lifted.
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Legislation
On November 1, 2013, a new Investment Law came into effect in Mongolia. The new law is aimed at reviving foreign
investment by easing restrictions on investors in key sectors such as mining and by providing greater certainty on the taxes
they must pay. The new law replaces two previous laws, including the Law of Mongolia on the Regulation of Foreign
Investment in Business Entities Operating in Sectors of Strategic Importance ("SEFIL"). The full impact of the new
Investment Law is not yet known.
On January 16, 2014, the Mongolian Parliament adopted a new State Minerals Policy. The main focus of the policy is to
establish a stable investment environment; improve the quality of mineral exploration, mining and processing; encourage
the use of environmentally friendly and modern technology; and strengthen the competitiveness of the Mongolian mining
sector on the international market. The State Minerals Policy is also intended to serve as the basis for amendments to the
existing Minerals Law and other laws relating to the mining sector.
The State Minerals Policy contemplates the establishment of a "Policy Council" with representatives of the State,
investors, professional associations and the public, to make recommendations and support the implementation of the State
Minerals Policy. The State Minerals Policy sets out a broad timetable for implementation of its objectives, with legislative
reform to be implemented in 2014 and 2015, implementation of the principles of the State Minerals Policy to take place
between 2014 and 2025, and assessment of the implementation of the Minerals Policy to occur between 2020 and 2025.
On July 1, 2014, the Mongolian Parliament passed the Law on the Amendments to the Minerals Law which amends the
2006 Minerals Law (the "2014 Amendments"). In addition, the Mongolian Parliament also passed a separate law which
repeals the 2010 statute which imposed a moratorium on the granting of new exploration licences and the transfer of
existing licences. The 2014 Amendments extend the maximum period for an exploration licence from 9 years to 12 years
(although it ended the three year pre-mining period sometimes given to licence holders upon the expiration of their
exploration rights), extend the requirement for holders of mining licences to ensure that 90% of their workforce is
comprised of Mongolian nationals to the mining licence holder’s subcontractors as well, make clearer the roles and
responsibilities of government ministries and departments with respect to mineral matters, modify the definition of
Strategic Deposit to reflect its impact on the national economy and not regional economy, and provide for some instances
where a tender may not be required to obtain minerals licences where state funding has been used if related to
compensation for declaring a special needs area, among other changes.
On February 18, 2015, the Mongolian Parliament adopted the Amendment Law to the Minerals Law of 2006 (the "2015
Amendment"), which purports to allow a licence holder to negotiate with the Government of Mongolia with respect to an
exchange of the Government’s 34% (50% in cases where exploration has been funded by the State budget) equity interest
in a licence holder with a Strategic Deposit for an additional royalty payable to the Government. The amount of the
royalty payment would vary depending on the particulars of the Strategic Deposit but cannot exceed 5 percent. The rate of
this royalty payment shall be approved by the Government of Mongolia. The full impact of the 2015 Amendment is not
yet known.
The Ministry of Finance and certain Members of Parliament have released draft laws and draft amendments to the tax
legislation of Mongolia which include provisions related to the taxation of foreign legal entities operating in Mongolia and
minerals companies in general. If certain provisions of these amendments were adopted by Parliament as currently
drafted, they could adversely affect Entree's interests. It is not possible to determine when, if ever, these amendments
would be adopted and in what form.
Agreements with Sandstorm
Equity Participation and Funding Agreement
On February 14, 2013, the Company entered into an Equity Participation and Funding Agreement (the "Funding
Agreement") with Sandstorm Gold Ltd. ("Sandstorm"). Pursuant to the Funding Agreement, Sandstorm provided a $40
million upfront deposit (the "Deposit") to the Company. In return, the Company will use future payments that it receives
from its mineral property interests to purchase and deliver metal credits to Sandstorm’s metal account.
Since the first payments that the Company receives are expected to come from its interest in the Joint Venture Property,
the amount of metal credits that the Company is required to purchase and deliver to Sandstorm, and the timing of such
deliveries, are determined with reference to Entrée’s share of production and receipt of payments from the sale of
production from the Joint Venture Property.
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Under the Funding Agreement, the Company will purchase and deliver gold, silver and copper credits equivalent to:
25.7% of Entrée’s share of gold and silver, and 2.5% of Entrée’s share of copper, produced from the portion
of the Shivee Tolgoi mining licence included in the Joint Venture Property (represented by the shaded upper
right portion in Figure 1 above); and
33.8% of Entrée’s share of gold and silver, and 2.5% of Entrée’s share of copper, produced from the
Javhlant mining licence (represented by the lower hatched portion of Figure 1 above).
In addition to the Deposit, upon the delivery of metal credits, Sandstorm will make a cash payment to the Company equal
to the lesser of the prevailing market price and $220/oz of gold, $5/oz of silver and $0.50/lb 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 be increased to the lesser of the
prevailing market price and $500/oz of gold, $10/oz of silver and $1.10/lb 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").
This arrangement does not require the delivery of actual metal, and the Company may use revenue from any of its assets
to purchase the requisite amount of metal credits.
Under the Funding Agreement, the Company has granted to Sandstorm a right of first refusal, subject to certain
exceptions, on future production-based funding agreements. The Funding Agreement also contains other customary terms
and conditions, including representations, warranties, covenants and events of default. The initial term of the Funding
Agreement is 50 years, subject to successive 10-year extensions at the discretion of Sandstorm.
In the event of a partial expropriation of Entrée’s economic interest, contractually or otherwise, in the Joint Venture
Property, which is not reversed during the abeyance period provided for in the Funding Agreement, the Company will be
required to return a pro rata portion of the Deposit (the amount of the repayment not to exceed the amount of the Unearned
Balance), and the metal credits that the Company is required to purchase and deliver to Sandstorm will be reduced
proportionately. In the event of a full expropriation, the full amount of the Unearned Balance must be returned with
interest.
Private Placement
On March 1, 2013, Sandstorm purchased 17,857,142 common shares of the Company at a price of C$0.56 per common
share for gross proceeds of approximately C$10 million. As at December 31, 2014, Sandstorm held approximately 12.2%
of the Company’s issued and outstanding common shares.
Under the Funding Agreement, Sandstorm agreed that it will vote its common shares of the Company as the Board
specifies with respect to any proposed acquisition of the Company, provided the potential acquirer agrees to execute and
deliver to Sandstorm a deed of adherence to the Funding Agreement.
Royalty Agreement
Pursuant to a royalty agreement dated February 14, 2013 between Sandstorm and Entrée, Sandstorm purchased a 0.4%
NSR royalty on the future sale of any metals and minerals derived from a portion of the Ann Mason Project (which
includes the Ann Mason and Blue Hill deposits) in Nevada. Consideration for the royalty was $5 million. In addition,
Entrée granted to Sandstorm a right of first refusal in the event Entrée wishes to enter into a future royalty or streaming
agreement on the Ann Mason Project.
Environmental Compliance
Entrée’s current and future exploration and development activities, as well as future mining and processing operations, if
warranted, are subject to various federal, state and local laws and regulations in the countries in which we conduct our
activities. These laws and regulations govern the protection of the environment, prospecting, development, production,
taxes, labour standards, occupational health, mine safety, toxic substances and other matters. Entrée expects to be able to
comply with those laws and does not believe that compliance will have a material adverse effect on our competitive
position. Entrée intends to obtain all licences and permits required by all applicable regulatory agencies in connection
41
with our mining operations and exploration activities. Entrée intends to maintain standards of compliance consistent with
contemporary industry practice.
Ann Mason Project, Nevada
Exploration permits issued by the Federal Bureau of Land Management ("BLM") and Nevada Division of Environmental
Protection ("NDEP") are required for all exploration operations that include drilling or result in surface disturbance.
Reclamation bonds remain in place until all reclamation work is complete and the Nevada Bureau of Mining Regulation
and Reclamation ("BMRR") of the NDEP has signed off on re-vegetation of drill sites and access roads.
In December 2007, a Plan of Operations (the "PlanOp") and application for a Nevada Reclamation Permit (the "Permit")
was submitted by M.I.M. (U.S.A.) Inc. ("MIM") to the NDEP, the BMRR and the BLM. The PlanOp was revised in
March 2009 and covers the area surrounding the Ann Mason deposit.
In conjunction with the PoO submission, MIM retained the BLM and Enviroscientists Inc. of Reno, Nevada to conduct an
Environmental Assessment in 2009. The Environmental Assessment was completed in December 2009. The "Finding of
No Significant Impact and Decision Record" approving the PlanOp is dated January 19, 2010. The PlanOp allows for
exploration activities consisting of drill sites and sump construction, road construction, road maintenance, overland travel,
exploration drilling, and bulk sampling for a total of up to 50 acres of surface disturbance over a ten year period.
A phased cash bond, in the amount of $84,132, paid by MIM, was accepted by the Nevada State Office of the BLM on
March 2, 2010, for exploration surface disturbance totaling 19.11 acres. Following the acquisition of MIM by Entrée in
June 2010, a Change of Operator form was filed with the BLM. Effective August 3, 2010, Entrée Gold (US) Inc. ("Entrée
US") was approved as operator and added as a co-principal on the bond.
In January 2011, Entrée US submitted an Amendment ("Amendment #1") to the PlanOp and minor modification to the
Permit to the BLM and BMRR. In Amendment #1, an increase in the approved work area is proposed, with no change to
the approved surface disturbance of 50 acres, or exploration techniques. On June 28, 2011, the BLM Sierra Front Field
Office approved Amendment #1 and the amount of the financial guarantee for surface disturbance totaling 19.11 acres was
increased to $147,568. To cover the financial guarantee, an additional bond, in the amount of $63,436 and posted by
Entrée US in the form of a Certificate of Deposit, was accepted by the Nevada State Office of the BLM on July 5, 2011.
In late 2013, Entrée US submitted a second Amendment ("Amendment #2") to the PlanOp and minor modification to the
Permit for the purpose of drilling up to 16 mineral exploration holes, 10 groundwater monitor wells and one production
water well outside of the previously approved PlanOp area. Three additional groundwater monitor wells are proposed
within the previously approved PlanOp area. The NDEP and BLM approved Amendment #2 in early 2014, and an
additional reclamation bond in the amount of $31,276 was posted by Entrée US in June 2014.
Entrée US received approval for two minor modifications to Amendment #2 in September 2014 and March 2015. The
September 2014 modification allowed for the drilling of 40 infill prefeasibility holes at Ann Mason. An additional
reclamation bond in the amount of $34,903 was posted and accepted by the Nevada State Office of the BLM. The March
2015 modification allows for the drilling of three additional exploration holes. An additional reclamation bond in the
amount of $3,628 was posted on March 9, 2015.
Drill sites, sumps and selected access roads for 24 of the 78 Ann Mason holes completed to date have been re-contoured
and seeded. Drill sites, sumps and selected access roads for 31 of the 49 Blue Hill holes completed to date have been re-
contoured and seeded. Inspection of completed reclamation work and confirmation of re-vegetation is required prior to
release of the bond by the BLM.
Two other areas within the Ann Mason Project were originally permitted for exploration by Entrée US, through Notices of
Intent. The first permitted area is west and northwest of the PlanOp area. A cash bond, in the amount of $51,051, paid by
Entrée US, was accepted by the Nevada State Office of the BLM on May 3, 2010. The notice allows for a maximum
disturbance of five acres. All surface disturbance related to drilling and access roads for drilling has been re-contoured
and re-seeded, and Entrée US has requested a release of the bond. The second permitted area is located on the unpatented
lode mining claims formerly known as the Roulette property. A notice was submitted by Bronco Creek Exploration Inc.
("Bronco Creek") to the BLM to conduct exploration trenching and drilling and a cash bond, in the amount of $27,113,
paid by Bronco Creek and reimbursed by Entrée US, was accepted by the Nevada State Office of the BLM on May 10,
2010. Entrée US was added as bond co-principal in order to extend the coverage of the bond to include liabilities for
42
operations conducted by Entrée US. The notice allows for a maximum disturbance of five acres. This surface disturbance
and reclamation bond remains in place pending a future transfer to the Ann Mason PlanOp.
In addition, two areas within the Ann Mason Project were permitted for exploration through notices submitted by MIM
prior to the Company’s acquisition of MIM. Notices of Intent for work on the Ludwig and Minnesota targets conducted
by MIM remain open pending clearance of the reclamation work by the BLM. MIM posted reclamation bonds in the
amount of $11,017 for Ludwig and $12,100 for Minnesota. Both bonds are administered through the State of Nevada
reclamation bond pool. Entrée US has completed surface reclamation and re-seeding on both targets and is working to
have the bonds released by the BLM.
Mongolia
Holders of an exploration or mining licence in Mongolia must comply with environmental protection obligations
established in the Environmental Protection Law of Mongolia, Law of Environmental Impact Assessment and the
Minerals Law. These obligations include: preparation of an Environmental Impact Assessment ("EIA") for exploration
and mining proposals; submitting an annual environmental protection plan; posting an annual bond against completion of
the protection plan; and submitting an annual environmental report.
Environmental bonds have been paid to the local governments, Khanbogd and Bayan-Ovoo soums, equal to
approximately $930 and $1445 respectively. These bonds cover current environmental liabilities for exploration work
undertaken at Shivee West. These amounts are refundable to Entrée on request once all environmental work has been
completed to the satisfaction of the local soums. Entrée also pays to the local soums annual fees for water, land and road
usage.
Development and exploration on the Joint Venture Property is controlled and managed by Rio Tinto on behalf of OTLLC,
which is responsible for all environmental compliance.
Competition
The mineral exploration, development, and production industry is largely unintegrated. We compete with other
exploration companies looking for mineral resource properties, the resources that can be produced from them and in hiring
skilled professionals to direct related activities. While we compete with other exploration companies in the effort to locate
and licence mineral resource properties, we do not compete with them for the removal or sale of mineral products from
our properties, nor will we do so if we should eventually discover the presence of them in quantities sufficient to make
production economically feasible. Readily available markets exist world-wide for the sale of copper, gold and other
mineral products. Therefore, we will likely be able to sell any copper, gold or mineral products that we are able to
identify and produce. Our ability to be competitive in the market over the long term is dependent upon our ability to hire
qualified people as well as the quality and amount of mineralization discovered, cost of production and proximity to our
market. Due to the large number of companies and variables involved in the mining industry, it is not possible to pinpoint
our direct competition.
C.
Property, Plants and Equipment
Entrée is a Canadian mineral exploration company based in Vancouver, British Columbia, focused on the worldwide
exploration of copper, gold and molybdenum prospects.
Entrée has interests in two material properties. The first, the Ann Mason Project in Nevada, is an advanced property
which includes the 100% owned Ann Mason copper-molybdenum porphyry deposit, which hosts Indicated and Inferred
mineral resources; the Blue Hill copper oxide deposit, which is located approximately 1.5 kilometres northwest of the Ann
Mason deposit and hosts Inferred mineral resources; the Blackjack IP, Blackjack Oxide and Roulette porphyry style
targets; and the Minnesota, Shamrock and Ann South copper skarn targets.
The second material property in which Entrée has an interest, the advanced Lookout Hill property in Mongolia, forms an
integral part of the Oyu Tolgoi project in southern Mongolia.
43
UNITED STATES
Ann Mason Project
The Ann Mason Project, located in the Yerington District of Nevada, is one of Entrée’s core advanced assets. With the
completion of a positive PEA study in 2012, Entrée is now evaluating the most efficient and effective way of advancing
the Ann Mason Project towards prefeasibility. In addition, the Company is considering strategic partnerships, joint
ventures and similar arrangements that would help facilitate the development of the project.
The project area is currently defined by the mineral rights to 1,657 unpatented lode claims on public land administered by
the BLM, and title to 33 patented lode claims. The project covers a total area of approximately 12,730 ha (31,456 acres).
Entrée assembled this package of claims through a combination of staking and a series of transactions undertaken since
August 2009, including the acquisition of PacMag Metals Limited ("PacMag").
The Ann Mason Project hosts two known mineral deposits: Ann Mason and Blue Hill. Both are copper-molybdenum
porphyries although Blue Hill is predominantly an oxide copper deposit. The project area also includes several early-stage
copper porphyry targets located within 12 kilometres of the Ann Mason deposit, including the Blackjack IP, Blackjack
Oxide and Roulette targets, as well as several copper skarn targets, including Minnesota, Shamrock and Ann South.
Unless otherwise described below, Entrée has a 100% interest, or an option to acquire a 100% interest, in the claims
comprising the Ann Mason Project.
A total of 226 of the unpatented lode claims, to the west and north of the Ann Mason and Blue Hill deposits, are subject to
a mining lease and option to purchase agreement ("MLOPA") with two individuals. The agreement provides for an option
to purchase the claims for $500,000, a 3% NSR royalty (which may be bought down to a 1% NSR royalty for $2 million)
and annual advance minimum royalty payments of $27,500, which commenced in June, 2011 and will continue until the
commencement of sustained commercial production. The advance payments will be credited against future NSR royalty
payments or the buy down of the royalty.
In September 2009, Entrée entered into an agreement to acquire an interest in 216 unpatented lode claims formerly known
as the Roulette property. Under the terms of the agreement, Entrée may acquire an 80% interest in the claims by: (a)
incurring expenditures of $1,000,000, making cash payments of $140,000 and issuing 85,000 common shares of the
Company (completed); (b) making aggregate advance royalty payments totaling $375,000 between the fifth and tenth
anniversaries ($50,000 paid to date); and (c) delivering a bankable feasibility study before the tenth anniversary of the
agreement.
Seventeen of the patented lode claims, which occur outside of the Ann Mason and Blue Hill deposits, are subject to a 2%
NSR royalty in favour of AngloGold Ashanti (Nevada) Corp., and 235 of the unpatented lode claims, including the claims
covering the Ann Mason and Blue Hill deposits, are subject to a 0.4% NSR royalty in favour of Sandstorm.
Separate from the patented and unpatented lode claims comprising the Ann Mason Project, Entrée has an option to
purchase 21 unpatented placer claims within the project boundaries, pursuant to an agreement entered into on April 30,
2014. In consideration of the option and a grant of access over the placer claims for the purpose of locating its own
unpatented lode claims, Entrée paid $35,000 and issued 250,000 common shares of the Company. Entrée may extend the
option period to acquire the placer claims to a maximum of five years, by making additional payments of $35,000 each on
the six-month (paid), first, second, third and fourth anniversaries of the effective date of the agreement. Entrée may
exercise the option at any time by paying a purchase price of $500,000. All cash option payments made by Entrée will be
credited towards the purchase price.
Entrée’s exploration work on the Ann Mason Project has primarily been focused on upgrading and expanding the mineral
resources of the Ann Mason deposit, outlining new copper-oxide and sulphide mineralization at Blue Hill and identifying
and drill testing new copper targets on other areas of the Ann Mason Project.
44
Figure 3 - Ann Mason Project Map
In February 2012, the Company retained AGP Mining Consultants ("AGP") to provide a NI 43-101 compliant PEA on the
Ann Mason deposit. As part of the PEA, the Ann Mason deposit mineral resources were updated by Quantitative Group
Pty Ltd ("QG"). The PEA focused on the Ann Mason sulphide copper deposit and concluded that it could be developed as
a large-scale open pit mine with a conventional sulphide flotation milling operation. AGP also provided the first mineral
resource estimate for the Blue Hill deposit. While the resource estimate for Blue Hill is included in the PEA technical
report, it was not evaluated as part of the PEA.
On October 24, 2012, the Company announced the results of the PEA on the Ann Mason deposit. Key results from the
PEA can be summarized as follows:
Base case, pre-tax NPV (using a 7.5% discount rate) ("NPV7.5") of $1.11 billion, internal rate of return
("IRR") of 14.8%, and payback of 6.4 years, based on long term metal prices of $3.00/lb copper, $13.50/lb
molybdenum, $1,200/oz gold and $22/oz silver (the "Base Case");
Base Case, post-tax NPV7.5 of $690 million, IRR of 12.6%, and payback of 7.1 years;
Development capital costs of approximately $1.28 billion, including contingency;
45
Average cash costs1 (net of by-product sales) of $1.46/lb copper;
Net annual undiscounted cash flow over the life of mine ("LOM") is approximately $227 million per year;
100,000 tpd conventional open pit mine utilizing a conventional sulphide flotation mill with a 24 year mine
life;
LOM production of 5.14 billion pounds of copper and 36.4 million pounds of molybdenum;
LOM strip ratio of 2.16:1 waste to mineralized material;
LOM average copper recovery of 93.5%; and
Copper concentrate grading 30%.
The PEA is preliminary in nature and includes Inferred mineral resources that are considered too speculative geologically
to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and
there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
The following information was taken from "Amended and Restated Preliminary Economic Assessment on the Ann Mason
Project Nevada, U.S.A." with an effective date of October 24, 2012, amended October 15, 2014 ("AMTR12"). AMTR12
was prepared by AGP, and a copy is filed on SEDAR at www.sedar.com. AMTR12 forms the basis for the information in
this AIF regarding the Ann Mason Project. Portions of the information are based on assumptions, qualifications and
procedures, which are not fully described herein. Reference should be made to the full text of AMTR12.
Project Description and Location
The Ann Mason Project is located in west-central Nevada, approximately 75 kilometres southeast of Reno, 45 kilometres
southeast of Carson City (the capital of Nevada), and 7 kilometres west of the town of Yerington. The Ann Mason Project
is situated within the Yerington Mining District, a historical copper mining district that covers the eastern side of the Ann
Mason Project in Lyon County. It is centered at approximately latitude 39°00’ N and longitude 119°18’ W, within both
Douglas and Lyon Counties.
The Ann Mason Project comprises both mineral rights to unpatented lode claims on public land administered by the BLM,
and title to patented lode claims. It is necessary for unpatented claim owners or their lessees to perform the following acts
annually in order to maintain the claims in good standing: (1) on or before September 1 (the beginning of the assessment
year), the owner/lessee must pay a claim maintenance fee of $155.00 per claim along with an Affidavit and Notice of
Intent to Hold to the State Office of the BLM in which the claim is located; (2) on or before November 1, the owner/lessee
must record an Affidavit that the BLM required fees have been paid and Notice of Intent to Hold for the previous claim
maintenance year in the county in which the claims are located. The Affidavit and Notice of Intent to Hold must be
accompanied by a fee equal to $10.50 per claim plus a nominal fee for county document recording. A Notice of Intent to
Hold has been recorded with Douglas and Lyon Counties and with the BLM for the 2014 annual assessment year which
ended at noon on September 1, 2014. The required annual mining claim maintenance fees in the amount of $155.00 per
claim have been paid to the BLM for the 2015 assessment year which began on September 1, 2014. Title to unpatented
mining claims is subject to the paramount title of the United States.
All property taxes payable to Lyon County for the patented claims have been timely paid and are current.
Surface rights to the areas covered by unpatented lode mining claims are vested with the BLM, which regulates surface
management. Entrée owns the surface rights to the Ann Mason Project’s 33 patented claims.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Both the Ann Mason and Blue Hill deposits are located approximately 1.5 kilometres apart in the southeast portion of the
project, where topography is mostly rolling mountains, with occasional steep slopes and wide, open valleys. Elevations
range from roughly 1,400 to 1,940 masl. Roulette, Blackjack IP, Blackjack Oxide, Minnesota, Shamrock and Ann South
1 Cash costs is a non-U.S. GAAP Performance Measurement. This performance measure is included because this statistic is widely
accepted as the standard of reporting cash costs of production in North America. This performance measure does not have a meaning
within U.S. GAAP and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. This
performance measure should not be considered in isolation as a substitute for measures of performance in accordance with U.S. GAAP.
46
are all early-stage targets. Access is very good to all parts of the project and work can be completed all year round in a
desert environment with hot dry summers and cool winters with occasional snow.
Reno is the closest major city, whose international airport has daily flights to various international and domestic
destinations. Yerington (population 3,300) is the closest city to the project, and can be accessed from Reno along 132
kilometres of paved highway (approximately 1.5 hours). Yerington is about seven kilometres east of the project boundary
and has an economy primarily based on agriculture and ranching. Mining was also significant between the 1950s and
early 1980s. Although Yerington has limited services for an advanced project, basic consumables and accommodations
are available there.
Northwest Nevada has a well-developed network of paved highways and secondary roads. Highway 95 links Yerington to
the interstate highway system. The nearest access to the rail network is located at Wabuska, 19 kilometres north of
Yerington. There is a small airport in Yerington with a 1.8 kilometre paved runway but no regular scheduled flights.
Yerington is connected to the State power grid and there is a power substation located in Weed Heights, adjacent to the
former Yerington mine, 2.5 kilometres east of the project.
The nearest known sources of water are the Walker River, located about 5.5 kilometres east of the project, and the
northern portion of Smith Valley, seven kilometres southwest of Ann Mason.
All water within Nevada belongs to the public and is subject to appropriation for beneficial uses, such as mining. The
State Engineer is responsible for administering and enforcing Nevada water law, which includes the appropriation of
surface and ground water in the State. Water rights may be acquired by making application to the State Engineer to
acquire new water rights, or by leasing or purchasing existing water rights from a third party. Entrée has retained a
consultant to examine and make recommendations with respect to the appropriation or acquisition of water rights for the
Ann Mason Project. Water required for exploration drilling is currently purchased from the City of Yerington.
The proposed Ann Mason pit will be a large scale open pit operation. A variety of skills will be required for normal
operation. It is anticipated that in excess of 600 permanent positions will be required for operation of the mine without
consideration for the additional contract labor by various vendors. The workforce will include, but not be limited to,
equipment operators, mechanics, electricians, office staff and supervisors. Nevada has a long history of mining and
numerous large scale operations with which to share mining personnel. However, training will be required for entry level
positions and internally to upgrade existing local labor.
History
Anaconda Copper Mining Company ("Anaconda") explored the Ann Mason Project area between 1956 and 1975, with the
bulk of the work focused on the Ann Mason deposit area. During 1969 and 1970, approximately 78,000 feet
(approximately 23,775 metres) of drilling was done, delineating the initial resources for the Ann Mason deposit.
Anaconda also completed geophysical surveys and preliminary metallurgical testwork and the initial drill holes over the
Blue Hill deposit.
Other companies, including Phelps Dodge Corporation, Mount Isa Mines (MIM), Lincoln Gold, PacMag and Honey
Badger Exploration completed exploration programs over the project between 1995 and 2009, including varying amounts
of RC and core drilling. The historical drilling completed on the project is summarized in Table 1 below:
47
Table 1 – Ann Mason Historical Drilling
Date
1967 – 1980
1990
2002
2006 - 2008
Subtotal (Ann Mason)
1968 - 1970
1995
2007 - 2008
Subtotal (Blue Hill)
2008
TOTAL
Target
Ann Mason
Ann Mason
Ann Mason
Ann Mason
Blue Hill
Blue Hill
Blue Hill
Minnesota
Geological Setting and Mineralization
Company
Anaconda
Arimetco
MIM
PacMag
Anaconda
Phelps Dodge
PacMag
PacMag
All Companies
No. Drill Holes
(core or RC)
Metres (m)
103
1
5
12
121
13
4
9
26
3
150
40,577
171
914
6,973
48,635
2,943
610
3,438
6,991
560
56,186
The Ann Mason Project area includes two main mineralized deposits: Ann Mason, a copper-molybdenum porphyry hosted
by granodiorite and quartz monzonite; and Blue Hill, a copper oxide and sulphide deposit, located approximately 1.5
kilometres northwest of the Ann Mason deposit. Several other underexplored copper oxide and sulphide targets are
located throughout the Ann Mason Project area.
Regional Geology
Ann Mason is hosted by several phases of the Jurassic-aged Yerington batholith, including granodiorite ("Jgd"),
porphyritic quartz monzonite ("Jpqm"), quartz monzonite ("Jqm") and younger quartz monzonite porphyry dykes ("Qmp-
a", "Qmp-b" and "Qmp-c"). Copper mineralization primarily occurs within a broad zone of main-stage potassic alteration
containing chalcopyrite and bornite. An assemblage of chalcopyrite-epidote or chalcopyrite-epidote-quartz mineralization
locally overprints main-stage potassic alteration and copper mineralization.
Within the Yerington district, Mesozoic host rocks and copper-molybdenum porphyry deposits have been rotated 60° to
90° westward by Miocene age normal faulting and extension. As a result, mineralized intercepts in vertical drill holes
through Ann Mason represent approximately horizontal intervals across the original pre-tilt geometry of the deposit.
Ann Mason Deposit
The Ann Mason deposit has the characteristics of a typical, large copper-molybdenum porphyry system. Projected to the
surface, the 0.15% copper envelope covers an area approximately 2.3 kilometres northwest and up to 1.3 kilometres
northeast. At depth, this envelope extends more than a kilometre below surface. The mineralization remains open in most
directions.
Within the 0.15% copper envelope the highest grades occur within a 200 metre to 800 metre thick, west-plunging zone
that surrounds the intrusive contact between granodiorite and porphyritic quartz monzonite. Within this zone, the highest
copper grades are dependent on vein density, sulphide species, frequency, and relative age of quartz monzonite porphyry
dykes and the mafic content of the granodiorite. Mineralization is closely associated with quartz monzonite (Qmp-a and
Qmp-b) porphyry dykes.
Sulphide zoning is that of a typical porphyry copper with an outer pyritic shell, and concentric zones of increasing
chalcopyrite and decreasing pyrite progressing inward to a central zone of chalcopyrite-bornite.
Within the northeast, southeast, and southwest quadrants of the deposit chalcopyrite and chalcopyrite-bornite are the
primary sulphide domains. This mineralization is the most dominant in terms of overall deposit tonnage and continues to
the drilled depth of the deposit. In the northwest quadrant the primary sulphide domain is chalcopyrite ≥ pyrite; a domain
48
that forms thick intervals of >0.3% copper, with only minor bornite present at depth, near the granodiorite-porphyritic
quartz monzonite contact.
Chalcopyrite occurs as individual grains in veins and disseminated in rock, as fillings in brecciated pyrite grains, attached
to or included in pyrite grains, and attached to or included in bornite. Bornite occurs as separate grains in veins, and
disseminated in rock and attached to chalcopyrite. Sparse chalcocite occurs as replacement rims on chalcopyrite, but more
commonly as replacement rims or exsolution replacement of bornite.
Molybdenum occurs as molybdenite in quartz veins and on fracture or shear surfaces as molybdenum paint in several of
the copper domains. In the current resource model molybdenum is constrained within a >0.005% molybdenum grade
envelope that occurs almost entirely within the 0.15% copper envelope and extending further below, where sodic (albite)
alteration has removed copper mineralization, leaving molybdenum largely in place. The molybdenum mineralization
also remains open towards the north.
Silver ≥0.6 g/t and gold ≥0.06 g/t are closely associated with the occurrence of bornite within the chalcopyrite-bornite
sulphide domain.
(chlorite and epidote occurring with pyrite) and
Alteration types include a broad, main-stage zone of potassic alteration (secondary biotite, K-feldspar), an outer propylitic
zone
sodic-calcic
(chlorite+oligoclase±epidote), sodic (albite), sericite, zeolite and gypsum. Late-stage sodic and sericite alteration occur
along late, high-angle faults and as local, pervasive alteration of rocks. In areas of strong (>15%) albite or sericite
alteration, the copper grades can locally be greatly reduced, resulting in copper grades <0.2% and in places, <0.05%.
Molybdenum mineralization is not significantly affected by the late sodic alteration, beyond partial remobilization from
veins into nearby fractures and shears.
late-stage overprints of
restricted
Two prominent structures form structural boundaries to the Ann Mason resource:
The relatively flat Singatse Fault truncates the upper surface of the 0.15% copper envelope over a portion of
the deposit and juxtaposes sterile Tertiary volcanic rocks on top of the mineralized intrusives.
A high-angle, northwest-trending, southwest-dipping fault located along the southwest margin of the
resource juxtaposes chlorite-altered rocks with pyrite mineralization in the hanging wall against
potassically-altered rocks with copper-molybdenum mineralization in the footwall. Copper-molybdenum
mineralization in the footwall remains open at depth along the entire strike length of the fault.
Other, late, high-angle faults, either with or without sodic or sericite alteration, cross the deposit in various orientations.
Blue Hill Deposit
The Blue Hill deposit is approximately 1.5 kilometres northwest of Ann Mason and occurs in a very similar geologic
environment, but in a separate fault block. Blue Hill will not be included in the PEA until additional exploration work is
completed.
Two main styles of porphyry mineralization have been identified: near surface, oxide/mixed-copper mineralization; and
underlying copper-molybdenum sulphide mineralization.
Both styles of mineralization are hosted by quartz monzonite with lesser amounts of porphyritic quartz monzonite and
quartz monzonite porphyry. The low-angle, southeast dipping Blue Hill Fault strikes northeast through the middle of the
target, cutting off a portion of the near-surface oxide mineralization. However, sulphides continue below the fault to the
southeast.
The oxide zone is exposed on surface and has been traced by drilling as a relatively flat-lying zone covering an area of
about 900 metres by 450 metres, and continuing for several hundred metres further to the west as a thinner zone.
Significant copper oxides, encountered in both RC and core drill holes extend from surface to an average depth of 124
metres. Oxide copper mineralization consists of malachite, chrysocolla, rare azurite, black copper-manganese oxides,
copper sulphates, and copper-bearing limonites. Mineralization occurs primarily on fracture surfaces and in oxidized
veins or veinlets. A zone of mixed oxide/sulphide mineralization with minor chalcocite is present below the oxide
mineralization to depths of up to 185 metres and averaging about 160 metres. The copper oxide zone remains open to the
northwest.
49
Oxide copper mineralization at Blue Hill is interpreted to be the result of in-place oxidation of copper sulphides with only
minor transport of copper into vugs, fractures, and faults or shear zones. No significant zones of secondary enrichment
have been observed.
The copper-mineralized sulphide zone underlies the southern half of the oxide mineralization and continues to depth
towards the southeast, below the Blue Hill Fault. Mineralization consists of varying quantities of pyrite, chalcopyrite, and
molybdenite. Local, higher-grade sulphide mineralization commonly occurs within zones of sheeted veins containing
chalcopyrite, magnetite and secondary biotite. Significant amounts of disseminated molybdenum mineralization have
been observed locally, often in contact with dykes. To the northwest, below the oxides only a few holes have tested the
sulphide potential; however, in this direction the sulphides appear to be increasingly pyritic with only minor amounts of
copper.
Alteration assemblages are similar to Ann Mason except that original zoning is difficult to discern in areas of pervasive
oxidation. Within zones of sulphide mineralization, propylitic alteration is more widespread and potassic alteration is
more restricted to quartz monzonite porphyry dykes and immediately adjacent rocks of the Yerington batholith. Late
stage sodic alteration locally reduces copper grades, similar to what has been observed at Ann Mason.
The sulphide mineralization remains open is several directions, most importantly, to the southeast, towards Ann Mason.
Recent Exploration
Until May 2012, exploration at Ann Mason and Blue Hill was mainly focused on resource drilling which is discussed in
more detail in following sections.
Exploration by Entrée in late 2012 comprised soil and rock geochemical sampling and geological mapping over areas
covering approximately 740 ha to the north of the Blue Hill and to the south and southwest of the Ann Mason deposits.
This work identified several targets requiring further evaluation.
From April to July 2013, Entrée completed 993 metres of RC pre-collar drilling and 2,159 metres of core drilling in five
holes to test the Ann Mason and Blue Hill deposits and other nearby exploration targets. Holes varied in depth from 502 to
811 metres.
At the Ann Mason deposit, core drilling in 2013 was designed to test for extensions of mineralization within the current
pit design, primarily along the northeast and northwest margins of the deposit. Three of the five core holes drilled at Ann
Mason extended copper mineralization 190 metres to 250 metres northwest and northeast of the deposit. Near the east end
of the deposit, hole EG-AM-13-035 intersected 220 metres (from 262 metres depth) averaging 0.30% copper, 0.07 g/t
gold and 1.70 g/t silver. Included within the intersection is a higher-grade interval of 100 metres grading 0.43% copper,
0.11 g/t gold and 2.75 g/t silver. Drill holes EG-AM-13-033 and 034, on the northeast side of the deposit, returned 310
metres of 0.21% copper and 46.0 metres of 0.27% copper, respectively and extend copper mineralization up to 250 metres
northeast of the current mineral resource. Ann Mason mineralization remains open in several directions and further
drilling programs will be needed to test this potential.
Two shallow, widely-spaced RC holes (totaling 180 metres) were completed about 500 to 900 metres to the west of Ann
Mason to test a new, near-surface oxide copper target. Holes EG-AM-13-038 and 039 encountered narrow intervals of
0.16% to 0.20% oxide copper within strong, quartz-sericite-pyrite alteration. Deeper sulphide potential below these holes
remains untested.
During 2013, drilling at Blue Hill successfully located westward extensions of the current deposit; however, to the east,
oxide and mixed mineralization is truncated by the low angle Blue Hill Fault. Although most recent drill holes mainly
tested oxide mineralization, two diamond holes (EG-BH-11-019 and 021) were drilled east of the oxide copper zone to
test deeper sulphide copper potential. Drilling of the underlying sulphide target remains very widely-spaced, but has
identified a target area more than one kilometre in width, which remains open in most directions. Significant molybdenum
mineralization was also intersected in two of the drill holes targeting the sulphide mineralization.
Hole EG-BH-11-031, located approximately one kilometre east of Blue Hill, intersected a near-surface zone of copper-
oxide mineralization assaying an average of 0.28% copper over 13.8 metres from a depth of 22.2 metres.
A short program of fill-in IP (31 line-kilometres) was completed in June 2013 over the central area of the Ann Mason
Project.
50
On July 16, 2014, the Company announced the commencement of a prefeasibility drill program, designed to upgrade the
mineral resources contained in the PEA Phase 5 pit from Indicated and Inferred to a mix of Measured and Indicated
categories. The infill drill program commenced in August 2014 and was completed in late January 2015. The program
comprised 40 holes and a total of approximately 19,265 metres combined RC pre-collars and core.
RC pre-collars were generally restricted to barren, overlying volcanics. Drilling changed to HQ diameter core, which was
continually sampled over two metre intervals once mineralized rocks of the Yerington batholith were encountered or hole
conditions dictated the change to core. Depths of holes ranged from 274.9 metres to 884.9 metres, depending on position
within the Phase 5 pit, and hole angles varied from -60 to -90 degrees.
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. Highlights include:
EG-AM-14-041, located near the centre of the deposit, with 390 metres of 0.35% copper;
EG-AM-14-043, located near the centre of the deposit, with 409 metres of 0.35% copper;
EG-AM-14-046, the eastern-most drill hole, with 112.3 metres of 0.34% copper;
EG-AM-14-050, with 176 metres of 0.35% copper;
EG-AM-14-057, with 327.4 metres of 0.38% copper, including 0.42% copper and 0.12 g/t gold over 200
metres;
EG-AM-14-059, with 466 metres of 0.31% copper;
EG-AM-14-065 with 150 metres of 0.38% copper;
EG-AM-14-067, with 377 metres of 0.32% copper;
EG-AM-14-073, on the northeast rim of the deposit, with 102 metres of 0.36% copper; and
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.
Of the 40 holes drilled, 25 ended in mineralization (copper values greater than the 0.15% copper cut-off). Lower grade
holes tend to be located toward the northern-most border of the Phase 5 pit, in areas where strong mineralization was not
expected. Only one hole, EG-AM-14-049, drilled along the northernmost border of the Phase 5 pit, failed to return any
significant results.
Drilling, Sampling and Analysis and Security of Samples
At Ann Mason, diamond drilling has concentrated on expanding and upgrading the mineral resources within the 0.15%
copper envelope, and defining zones of higher grade mineralization. At Blue Hill, drilling was primarily by RC, designed
to test the extent of shallow oxide copper mineralization, but also to establish the potential for deeper, sulphide
mineralization.
Entrée has completed 78 drill holes totalling approximately 56,200 metres of combined RC pre-collar and core drilling at
Ann Mason.
Entrée has completed 40 RC and diamond drill holes totalling approximately 9,000 metres at the Blue Hill deposit. Six
additional diamond drill holes totalling approximately 2,700 metres have been completed in areas adjacent to the Blue Hill
deposit.
Drilling conducted by Entrée has been accompanied by a thorough QA/QC program, which currently includes the regular
insertion of coarse blanks, core twins, coarse duplicates, pulp duplicates and standards with each batch. A review of the
regular QC data indicates that the copper and molybdenum assays are of acceptable precision and accuracy to be used in
mineral resource estimates.
Several sampling and analytical campaigns have been completed at the Ann Mason Project. Samples from Entrée’s
previous drilling programs have been prepared and analyzed at Skyline Assayers and Laboratories, in Battle Mountain and
Sparks, Nevada and Tucson Arizona; at Acme Analytical Laboratories, in Elko and Reno, Nevada and Vancouver, British
Columbia; or at ALS Chemex, in Sparks, Nevada and Vancouver, British Columbia. At the completion of the assaying,
51
approximately 5% of the pulps were sent to Acme Analytical Laboratories in Vancouver, British Columbia, an
independent laboratory, for secondary lab check assays. Entrée’s review of the check assay results did not reveal any
significant bias between the primary and secondary labs for both copper and molybdenum at Ann Mason.
Samples from the most recent in-fill drilling program have been prepared at Acme Analytical Laboratories, in Elko and
Reno, Nevada and then analyzed at Acme’s main laboratory in Vancouver, British Columbia. At the completion of the
current sampling program, approximately 5% of the pulps were sent to ALS Chemex in Vancouver, an independent
laboratory, for secondary lab check assays. At the time of this Annual Report, results had been returned for 20 of the holes
drilled and Entree’s review of the check assay results did not reveal any significant bias between the primary and
secondary labs for both copper and molybdenum.
Entrée personnel or contractors have carried out all of the current sampling programs.
Assay samples are kept in a secure facility prior to being picked up by the laboratory. Sample shipments are picked up by
laboratory personnel and taken to the lab. Strict chain of custody procedures are maintained during the transporting of the
samples to the labs. An Entrée Sample Submittal Form and order for Analytical Services is transmitted with each sample
shipment, with a copy retained by Entrée. The form includes shipment number, date shipped, shipping method,
destination, number of bags, and contents of shipment (range of sample numbers). Individual assay samples are packaged
in woven, polypropylene bags (four per bag), secured with plastic zip ties. The polypropylene bags are shipped on wooden
pallets secured with shrink wrap. All sample shipments are made by Entrée or laboratory vehicles and personnel. Upon
delivery to the laboratory, sample shipment information is recorded into the laboratory’s Information Management
System. Indications of tampering or discrepancies between samples received and samples shipped are reported to Entrée
by the laboratory. In some cases, the laboratory will e-mail delivery confirmation to Entrée.
Once logged and split, the core is stored on racks or, in the case of wooden core boxes, stacked on pallets in a secure
storage facility. Most of the pulps and coarse rejects are returned to Entrée’s Yerington facility, where they are catalogued
and stored on site in a secure location. Pulps that were analysed by Acme in Vancouver are stored in Vancouver or have
been destroyed; however, rejects for these samples are stored at Entrée’s facility in Yerington.
AGP is of the opinion that the sample preparation, analytical procedures, and security measures in place during the
sampling programs are adequate to support the mineral resource estimates.
In 2012, Entrée initiated a program of re-sampling and assaying approximately 12,413 metres of historical Anaconda core
(6,142 samples) from 44 historical drill holes. This includes additional core from 19 of the 23 drill holes partially re-
sampled by PacMag in 2006 and core from 25 complete holes selected by Entrée. The purpose of the re-assay work was
to increase the database of molybdenum, gold and silver assays and provide more uniform coverage throughout the
deposit, allowing these by-product elements to be brought into the resource estimates. The study also validates the copper
grades originally reported by Anaconda. Entree’s review indicates a good comparison between Entree’s copper assay
results and the historical data, with a low bias (1.0%) noted between the two sets of data.
Mineral Resource Estimates
Ann Mason Deposit
The Company contracted QG based in Perth, Australia, to prepare an updated mineral resource estimate for the Ann
Mason deposit in early 2012. The current resource estimate is contained within a constraining Lerchs-Grossmann (“LG”)
pit shell, generated by AGP, and is based on approximately 33,000 metres of Entrée drilling in 30 holes and approximately
49,000 metres of historical drilling in 116 holes. The resource database also includes re-assaying of 6,142 samples from
44 historical Anaconda core holes, to allow molybdenum, gold, and silver values to be estimated. At a base case cut-off
of 0.20% copper, the deposit is estimated to contain an Indicated resource of 1,137 million tonnes (“Mt”) at 0.33% copper
and 0.006% molybdenum and an Inferred resource of 873 Mt at 0.29% copper and 0.004% molybdenum. By-product
levels of gold and silver were also estimated and are shown in Table 2 below. The mineral resource estimate is CIM
compliant and prepared in accordance with NI 43-101. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
52
Table 2 – Ann Mason Mineral Resources (Effective Date August 14, 2012)
Cutoff
(% Cu)
Indicated
0.15
0.20
0.25
0.30
0.35
Inferred
0.15
0.20
0.25
0.30
0.35
Tonnage
(Mt)
Cu (%) Mo (%) Au (g/t)
Ag (g/t)
Cu
(B lb)
Mo
(B lb)
1,233
1,137
912
639
388
1,017
873
594
330
152
0.31
0.33
0.35
0.38
0.42
0.27
0.29
0.32
0.36
0.40
0.006
0.006
0.006
0.006
0.007
0.004
0.004
0.004
0.004
0.004
0.02
0.02
0.03
0.03
0.03
0.03
0.03
0.04
0.04
0.04
0.55
0.57
0.60
0.64
0.69
0.61
0.65
0.73
0.81
0.86
8.53
8.15
7.02
5.37
3.58
6.16
5.59
4.20
2.60
1.34
0.16
0.15
0.12
0.09
0.06
0.10
0.08
0.05
0.03
0.01
The key estimation parameters used by QG for the Ann Mason estimate are as follows:
Copper was interpolated using a single estimation domain created using an approximate 0.15% copper
threshold. A similar however smaller domain was built for molybdenum using a 0.005% threshold.
Assays were composited to five metres in line.
Copper and molybdenum variograms show that there is not a high degree of anisotropy; there is a moderate
nugget effect and ranges up to 300 metres were modelled.
Inside the copper domain, composites above 2% were given a restricted range of influence (40 metres). For
molybdenum, a similar strategy was applied at 0.01% molybdenum.
Estimation of 40 x 40 x 15 metre blocks was by Ordinary Kriging ("OK").
Density in the mineralized porphyry was based on 4,051 wax-immersion determinations and an OK model
was built. In the volcanics above the Singatse Fault a single bulk density value (2.34) based on 130
measurements was used.
The resource was classified into Inferred or Indicated using a number of factors, taking into account
confidence in the model, data spacing and various complementary geostatistical parameters, as follows:
-
Indicated: Material inside the 0.15% copper domain with a spacing of approximately 100 metres x 75
metres or less and with a slope of regression (a measure of conditional bias) above 0.7.
Inferred: Material inside the 0.15% copper domain with a spacing of greater than 100 metres, but less
than 175 metres (i.e. the rest of the copper domain).
Not Classified: All material outside the 0.15% copper domain or below the economic pit shell.
-
-
The general parameters of the LG pit are as follows:
three-year trailing average gross metal values of $3.61/lb copper, $14.94/lb molybdenum, $1,425/oz gold,
and $27.91/oz silver.
metallurgical recoveries of 92% copper, 50% molybdenum, 50% gold and 55% silver.
mining costs: $1.09/t base cost to the 1,605 metre level then increasing by $0.02/t per 15 metre bench below
that level.
process and general management and administration ("G&A") costs of $6.12/t ($5.82/t process plus $0.30/t
G&A).
pit slopes of 52° in the volcanic rock and 44° in the porphyry mineralization.
53
Blue Hill Deposit
AGP estimated mineral resources at Blue Hill, which were not included in the PEA mine design and economic analysis.
The Blue Hill resource estimate was prepared as a first step in determining if Blue Hill could serve to generate early cash
flow for Ann Mason, should the Ann Mason deposit advance to production.
Blue Hill, as currently defined by the 0.075% copper shell and the constraining resource pit, underlies a 900 metre by 450
metre area. Combined oxide and mixed zones range up to 185 metres in thickness (thinning to the northwest) with the
sulphide zone appearing at an average depth of 160 metres below surface. Mineralization remains open in several
directions.
Preliminary metallurgy suggests the oxide and mixed copper mineralization is amenable to low-cost, heap leach and
SX/EW processing. Average copper recovery in the oxide mineralization in column leach testing is 86%, while the mixed
material returned 83% recovery. The underlying sulphide-copper mineralization has only been tested with ten widely
spaced holes and remains open in most directions.
The estimate is based on copper, molybdenum, gold, and silver drillhole sample grades collected from 6 core and 24 RC
drill holes completed by Entrée, and also from 20 historical core and RC drill holes completed by Anaconda and PacMag.
The key parameters of the estimate are as follows:
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 t/m3 and the sulphide zone was
assigned 2.62 t/m3.
All blocks were classified as Inferred in accordance to CIM definitions.
Mineral resources were reported within an LG pit shell, generated by AGP, above a copper cut-off of 0.10% for the oxide
and mixed zones and 0.15% for the sulphide zone.
The general parameters of the LG pit are as follows:
average gross metal values of:
-
-
$3.32/lb copper for oxide and mixed material.
$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 copper.
75% for mixed material.
92% copper, 50% molybdenum, 50% gold and 55% silver for sulphide material.
mining costs:
-
-
-
oxide and mixed feed material - $1.30/t.
sulphide feed material - $1.13/t.
all waste costs - $1.13/t.
process and G&A costs of:
-
$5.06/t for oxide and mixed material.
54
-
$6.22/t for sulphide material.
pit slopes of 40 degrees in both the overlying volcanic and in the mineralized granodiorite.
Pit-constrained resources are reported separately for oxide, mixed and sulphide copper mineralization. The Blue Hill
resource is currently 72.13 Mt grading 0.17% copper in the oxide and mixed zones and 49.86 Mt grading 0.23% copper in
the sulphide material (Table 3). Mineral resources that are not mineral reserves do not have demonstrated economic
viability.
Table 3 – Blue Hill Inferred Mineral Resource (Effective Date July 31, 2012)
Zone
Cu Cut‐off
(%)
Tonnes
(Mt)
Grade
Cu (%)
Contained Cu
(Mlb)
Oxide Zone
Mixed Zone
Oxide + Mixed Zones
Sulphide Zone
0.10
0.10
0.10
0.15
47.44
24.69
72.13
49.86
0.17
0.18
0.17
0.23
179.37
98.12
277.49
253.46
Mo
(%)
-
-
-
0.005
Au
(g/t)
-
-
-
0.01
Ag
(g/t)
-
-
-
0.3
Notes:
1. Mineral resources are classified in accordance with the 2010 CIM Definition Standards for mineral resources and mineral reserves.
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.
Geotechnical
The Company retained a third party engineering firm, in association with AGP, to undertake a geotechnical review of the
proposed open pit. To accomplish this, the firm completed a site visit in February/March 2012. During the site visit, rock
mass characterization was completed by reviewing available core, visiting the Yerington pit, located on an adjacent
property owned by Quaterra Resources Inc. ("Quaterra"), and by examining the Ann Mason site with Entrée personnel.
The drill core that was reviewed from the Ann Mason deposit was primarily located in the area of mineralization; no drill
core was available in the area of the proposed pit slopes. In addition, much of the drill core reviewed had been cut and
sampled for assays. Drill core was HQ diameter and recovered with the "double tube" method, typical of exploration
geology drilling. This method is adequate for geology logging and assay; however, the core can be disturbed and broken
by the drilling process. As such, rock quality designations ("RQD") logged by Entrée as part of their basic data collection
may under-represent the in-situ quality of rock mass due to this disturbance. The engineering firm supplemented Entrée’s
data with observations of rock strength, fracture spacing, longest stick, and joint conditions for the sections of core
reviewed.
Geotechnical data relevant to the open pit slopes is limited at this stage of study, typical of most mine development
projects at the PEA stage. AGP concluded that Entrée’s work on the geology of the site appears to be of good quality and
its development of a fault model at this stage of study is commendable. The major data limitation identified in the review
is a lack of geotechnical drilling information outside of the mineralized zone or proposed wall slopes. Geotechnical data
in the area of the proposed pit slopes will be needed for future geotechnical evaluations.
The rock mass of the Ann Mason deposit was divided into three main geotechnical units:
Tertiary volcanics (Domain I).
Granodiorite of the Yerington batholiths (Domain II).
Quartz monzonite porphyry of the Yerington batholiths (Domain II).
The overlying volcanics have limited the weathering of the underlying granodiorites and monzonites.
Bedding is the main geological structure observed in the volcanic rocks of the Ann Mason deposit. The bedding dips on
average at 62° to the west. This west dip of the bedding is a result of the regional tilting due to the rotation of normal
55
faulting. The main faults of the Ann Mason deposit are the Singatse Fault, the Montana Yerington Fault (1.5 kilometres
east of pit), and several possible southeast-striking normal faults.
Pit slope configurations were provided to AGP by the third party engineering firm for pit design work. This included
overall slope angle, inter-ramp angle by domain, bench height, safety bench spacing, and width and bench face angles.
The maximum inter-ramp height is limited at this stage of study to 150 metres in the Ann Mason deposit. Each 150
metres, an extra width "geotechnical berm" is to be applied which has a width of 32 metres.
The pit slope design indicated the following:
Volcanics (Domain I)
-
-
-
-
inter-ramp angle = 52 degrees
bench face angle = 67 degrees
height between safety benches = 30 metres (double benched)
width of safety bench = 11 metres
Porphyry (Domain II)
-
-
-
-
inter-ramp angle = 39 degrees
bench face angle = 63 degrees
height between safety benches = 15 metres (single benched)
width of safety bench = 11 metres
These have been incorporated in the current design.
The engineering firm recommends the following:
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.
Mining
The PEA focused on the potential development of the Ann Mason deposit. It was determined that a conventional large-
scale open pit is possible at the deposit. The deposit would be mined at a rate sufficient to feed a mill at a rate of 100,000
tpd.
The Ann Mason pit has been designed as a series of five pushbacks or phases and will be developed using conventional
rotary drilling, blasting and loading with electric cable shovels and 360 tonne trucks. The open pit will have a mine life of
24 years, after three years of pre-stripping to ensure sufficient material is available for the mill. A total of 562.3 Mt of
Indicated resource grading 0.32% copper, 0.005% molybdenum, 0.03 g/t gold and 0.56 g/t silver makes up 67% of the
mill feed over the mine life. The remaining 33% of the mill feed is in the Inferred category and amounts to 274.1 Mt
grading 0.29% copper, 0.003% molybdenum, 0.03 g/t gold and 0.63 g/t silver.
The LOM strip ratio is 2.16:1 and 1,808.7 Mt of waste rock will be moved over the course of the mine life.
Waste material will be placed to the southwest of the Ann Mason pit in a waste rock management facility ("WRMF"). For
this study, waste materials have been assumed to be non-acid generating based upon a review of sulphur present in the
56
deposit. This assumption will need to be confirmed in subsequent levels of study beyond the PEA. Material in the pre-
stripping phase will also be directed to two of the tailings dams to reduce quarrying costs during construction.
Operating costs for the open pit are expected to average $1.18/t total material over the LOM or $3.82/t of mill feed. At the
peak of material movement in Year 5, the major equipment fleet is expected to consist of five 229 millimetre drills, two
40.5 m3 front-end loaders, four 55.8 m3 electric cable shovels and thirty-two 360-tonne trucks. Normal support
equipment (track dozers, rubber tired dozers, graders) would also be part of the fleet to maintain normal mining
operations.
Pre-stripping operations will begin in Year -3 and by Year 1, 4.3 Mt of mill feed will have been stockpiled in preparation
for the mill start up. This stockpile will be rehandled and sent to the mill in Year 1. Year 1 will see the plant capacity at
27 Mt/a to allow for ramp up but subsequent years will be at the nominal capacity of 100,000 tpd or 36 Mt/a.
Mining will focus on material above 0.2% copper content until Year 22. The material between the milling cut-off
(0.145% copper) and the 0.2% copper cut-off will be stockpiled. In Year 22, the stockpile material will be rehandled and
directed to the primary crusher as mill feed. Mining of material in the pit will cease in Year 23 and processing operations
will be complete in Year 24, once the stockpile has been depleted.
Reclamation of the WRMF will be concurrent with mining. The final height of the facility will be at elevation 1665 for an
overall maximum height of 125 metres.
Metallurgy and Process
Metallurgical testwork conducted in 2011 at Metcon Research in Tucson, Arizona (now SGS North America Inc. ) has
indicated that the Ann Mason mineralized material is amenable to concentration by conventional grinding and froth
flotation. A grindability composite sample was found to have a moderate Bond Ball Work Index ("BBWI") of
15.7 kWh/t, while batch rougher flotation tests revealed an optimum primary grind size of approximately 100 to 120 µm.
Locked cycle testing of two composites, representing the chalcopyrite, and chalcopyrite-bornite domains, resulted in
copper recovery to final concentrate in excess of 93%, at saleable concentrate grades, and with no penalty elements
identified. The potential for producing a separate molybdenum concentrate has also been investigated and is included as
part of the PEA; however, larger scale testing is required in order to generate more accurate grade and recovery estimates
due to the low sample head grade.
Follow-up testwork conducted in 2012 on samples from the chalcopyrite-pyrite mineralized domain of the Ann Mason
deposit indicated that acceptable concentrate grades could still be achieved despite the lower copper head grade and the
higher ratio of sulphur to copper for the composites from this zone. This mineralized domain represents a very minor
portion of the total mineralized material within the PEA mine plan.
Based on the results of the testwork, a PEA level plant design was completed to process the Ann Mason sulphide material
at a nominal rate of 100,000 tpd. The design combines industry standard unit process operations consisting of primary
crushing, semi-autogenous grinding ("SAG") milling, closed circuit ball milling, copper-molybdenum bulk rougher
flotation, concentrate regrinding, copper-molydenum cleaner flotation, copper-molybdenum separation flotation, and
product and tailings dewatering.
Recommendations for future work to improve the understanding of the metallurgy at Ann Mason include a detailed
grindability study and comminution circuit modelling for the sulphide material and the development of the copper-
molybdenum separation flotation circuit.
Preliminary column leaching tests were carried out on oxide and mixed oxide-sulphide composites from the Blue Hill
deposit. Results indicated that good copper extractions, averaging 84.8%, were achievable after 91 days of acid leaching
at a moderate crush size P80 of ¾". Acid consumption for the column tests averaged 11.95 kilograms per kilograms of
copper, or 18.04 kilograms per tonne.
Additional column leach testing of the Blue Hill oxide zone is recommended.
Infrastructure and Site Layout
A site layout has been prepared to illustrate the proposed location of required infrastructure, mining, and processing
facilities for the Ann Mason Project (Figure 4).
57
Figure 4 - Ann Mason Project Site Layout
The mill is to be constructed to the northeast of the open pit and consists of a process plant and the supporting
infrastructure for mining operations. A mining equipment garage, as well as mine dry, offices, and warehouse, are also
included in the site complex. Access to the site will be via an upgraded access road to the northeast of the Ann Mason
Project.
The anticipated power demand will be 105 MW during peak production. Power will come from the existing NV Energy,
120 kV transmission line in service just east of the town of Yerington. A tap from this line will be constructed along with
10 kilometres of new 120 kV line to service the site. The line will feed two main substation transformers.
Tailings for the Ann Mason operation will be located to the northwest of the deposit. Two large dams will be constructed
at either end of the valley to contain the tailings. The north dam will be constructed primarily of rock fill with some
cycloning of tailings. The south dam, and largest will be initially rock fill then cyclone tailings. Additionally, two smaller
rockfill dams will be on the east side of the tailings management facility. The tailings management facility as proposed is
sufficient to encompass the full quantity of tailings material for the PEA schedule with capacity available with either a
reduction in freeboard or increase in the tailings dam height.
The process plant will be located on the topographic saddle to the northwest of the Ann Mason pit. A large flat area is
present that will accommodate the full plant, mobile equipment maintenance shop and offices. Material from the mine for
processing will be transported to the mill by an overland conveyor from a primary crusher located on the edge of the
existing pit design.
58
Capital and Operating Costs
Capital Costs
Table 4 shows a summary of the capital costs for the Ann Mason Project.
Initial capital requirements (preproduction) are estimated to be $1,010.4 million. Production starts in Year 1 and the tail
end of the start-up capital requirements will be partially offset by revenue in that year. Capital requirements for Year 1
total $272.9 million. The indirect and contingency values vary by capital cost item; the percentages applied are shown in
Table 5.
Table 4 – Capital Cost Summary
Capital Category
Total Capital
($M)
Preproduction Capital
Year -3 to Year -1
($M)
Production Capital
Year 1
($M)
Sustaining Capital
Year 2+
($M)
Open Pit Mining
Processing
Infrastructure
Environmental
Indirects
Contingency
Total
729.6
425.9
205.1
75.3
237.5
171.9
1,845.4
255.4
337.3
164.4
1.1
156.8
95.4
1,010.4
102.7
84.3
16.3
0.7
36.8
32.1
272.9
Table 5 – Capital Category Indirect and Contingency Percentages
Capital Category
Open Pit Mining
Processing
Infrastructure
Environmental
Operating Costs
Indirects
(%)
10.0
18.2
20.0
5.0
371.5
4.2
24.5
73.5
43.9
44.5
562.1
Contingency
(%)
10.0
15.2
15.0
10.0
Operating costs were developed for a 100,000 tpd mining and milling operation with a 24-year milling life. The pre-strip
requirements add an additional three years prior to milling commencement.
Diesel fuel pricing is estimated at $1 per litre using a $100/barrel reference price. This estimate was derived from a price
quotation for off-road diesel fuel delivered to site with applicable taxes considered. The price for electrical power was set
at $0.064/kWh, based on current Nevada industrial pricing.
G&A costs are based on an average of 53 people; 16 staff and 37 hourly. Additional charges, such as public relations,
recruitment, logistics, and busing, are also included in the G&A costs. Mine employees will be located in the immediate
area, and no camp will be provided or required.
Concentrate transportation costs are estimated using values from logistics firms. Delivery of the concentrate will be by
bulk trailers and hauled either to the port of Stockton, California, or by truck/rail to Coos Bay, Oregon, or Vancouver,
Washington, for delivery to customers overseas. The molybdenum concentrate will be stored in tote bags and delivered to
locations in the United States, either Arizona or Pennsylvania. At this level of study, no definitive sales contracts have
been negotiated.
Port costs consider the handling of the bulk material, assaying, and cost of the referee on the concentrate grade.
59
Shipping to smelter cost is based on current seaborne rates for delivery to various smelters in the Pacific Rim for the
copper concentrate.
A summary of all the operating cost categories on a cost per tonne mill feed basis over the total mill feed tonnage is shown
in Table 6. Costs associated with those items directly attributable to the concentrate are reported in cost per tonne of
concentrate.
Table 6 – Total Operating Costs
Cost Category
Open Pit Mining – Mill Feed and Waste
Processing
G&A
Subtotal On-Site Costs
Concentrate Trucking
Port Cost
Shipping to Smelter/Roaster
Subtotal Off-Site Costs
Total
Economic Analysis
Total
($M)
3,191.0
4,290.7
287.5
7,769.2
529.4
43.9
202.1
775.5
8,544.7
Cost per Tonne
($/t Mill Feed)
Cost per WMT Concentrate
($/t Concentrate)
3.82
5.13
0.34
9.29
-
-
-
-
-
-
-
-
-
60.02
4.98
22.92
87.92
-
The PEA is preliminary in nature and includes Inferred mineral resources that are considered too speculative geologically
to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and
there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
The analysis is based on a LOM plan for 24 years at a processing rate of 100,000 tpd. The decision to use the 100,000 tpd
rate was determined early in the study through various trade-off studies. This provided a reasonable NPV while
maintaining LOM capital (including sustaining capital) below $2 billion.
The tonnes and grades from the five-phase design for the open pit phases were used in the discounted cash flow ("DCF")
analysis. The breakdown of Indicated and Inferred material utilized in the analysis is shown in Table 7 to highlight the
percentage of material currently in the Indicated category. Two additional phases were designed, complete with access,
but while still economic, did not benefit the NPV of the overall project at current metal prices. These demonstrate upside
potential for the mine.
The DCF analysis was completed using different metal prices with low, base, high and spot price cases examined. All of
the prices in those options were below the three-year trailing average prices for each of the metals as of September 17,
2012. Table 8 summarizes the metal prices used in the low, base and high scenarios.
Table 7 – DCF Tonnes and Grade by Phase and Category
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
1
2
3
4
5
Total
Indicated
0.004
0.006
0.004
0.004
0.005
0.005
0.31
0.32
0.35
0.32
0.30
0.32
0.01
0.02
0.03
0.03
0.03
0.03
0.39
0.49
0.68
0.55
0.59
0.56
53.4
92.7
106.1
193.0
117.1
562.3
67%
-
5.3
59.0
87.5
122.3
274.1
33%
60
Inferred
-
0.28
0.32
0.29
0.27
0.29
-
0.004
0.002
0.003
0.003
0.003
-
0.02
0.03
0.03
0.03
0.03
-
0.34
0.62
0.62
0.64
0.63
143.7
239.8
340.8
534.7
549.7
1,808.7
2.69
2.45
2.06
1.91
2.30
2.16
Table 8 – Metal Prices by Scenario
Metal
Copper
Molybdenum
Silver
Gold
Unit
$/lb
$/lb
$/oz
$/oz
Low Case
2.75
13.50
15.00
1,100.00
Base Case
3.00
13.50
22.00
1,200.00
High Case
3.25
13.50
26.00
1,300.00
The Base Case is the scenario chosen by AGP and the Company, with the other scenarios showing price sensitivities. The
results for the Base Case indicate the potential for a pre-tax NPV7.5 of $1,106 million with an IRR of 14.8%. The
payback period is 6.4 years, with payback occurring in the seventh year of production. The post-tax NPV7.5 is $690
million with an IRR of 12.6%. The post-tax payback is 7.1 years (Table 9).
Potential revenue from the various metal streams with the Base Case pricing had copper as the dominant value from the
deposit at $14.6 billion or 93.2% of the total revenue. This is followed by molybdenum at $449 million for 2.9% of the
revenue, then gold at $432.8 million (2.8%) and silver at $172.2 million (1.1%).
The metal terms considered copper smelting to cost $65/dmt and refining to cost $0.065/lb for an average concentrate
grade of 30%. The molybdenum roasting fees would be $1.15/lb with 99% payable. Silver and gold would both be
payable at 97% with refining charges of $1.00/oz silver and $10.00 /oz gold.
Table 9 – Discounted Cash Flow Results
Cost Category
Operating Costs
Open Pit Mining
Processing
G&A
Concentrate Trucking
Port Costs
Shipping to Smelter
Subtotal Operating Costs
Capital Costs
Open Pit Mining
Processing
Infrastructure
Environmental Costs
Indirect
Contingency
Subtotal Capital Costs
Revenue
(after
roasting, payables)
Net
(Revenue-Operating-Capital)
Net Present Value (Pre-Tax)
NPV @ 5%
NPV @ 7.5%
NPV @ 10%
IRR
Payback Period
smelting,
Cash
Units
Low Case Base Case High Case
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
(M$)
3,191.0
4,290.7
287.5
529.4
43.9
202.1
8,544.7
729.6
425.9
205.1
75.3
237.5
171.9
1,845.4
14,249.4
3,191.0
4,290.7
287.5
529.4
43.9
202.1
8,544.7
729.6
425.9
205.1
75.3
237.5
171.9
1,845.4
15,629.9
3,191.0
4,290.7
287.5
529.4
43.9
202.1
8,544.7
729.6
425.9
205.1
75.3
237.5
171.9
1,845.4
16,985.4
refining,
Flow
(M$)
3,859.4
5,239.9
6,595.4
(M$)
(M$)
(M$)
(%)
Years
(Year
1,223
589
182
11.6
7.9 (Yr 8)
1,918
1,106
576
14.8
6.4 (Yr 7)
61
2,602
1,614
964
17.8
5.3 (Yr 6)
Net Present Value (Post-Tax)
NPV @ 5%
NPV @ 7.5%
NPV @ 10%
IRR
Payback Period
paid)
(M$)
(M$)
(M$)
(%)
Years
(Year
paid)
807
304
-18
9.8
8.6 (Yr 9)
1,320
690
281
12.6
7.1 (Yr 8)
1,814
1,062
568
15.1
6.0 (Yr 6)
Notes:
1. The discounted cash flow results do not take into account the 0.4% NSR royalty granted to Sandstorm subsequent to the preparation of
the PEA.
Table 10 shows other production estimates pertaining to the metals produced. This includes cash costs anticipated for
copper and molybdenum. The values do not take into account the 0.4% NSR royalty granted to Sandstorm subsequent to
the preparation of the PEA.
Sensitivities to various inputs were examined on the Base Case. The items varied were recovery, metal prices, capital
cost, and operating cost. The results of that analysis are shown in Figure 5 and Figure 6.
Table 10 – Metal Production Statistics, Cash Cost Calculations and Key Economic Parameters
Cost Category
Total Operating Cost
Mine Life
Initial Capital Costs (Year -3, Year -2, Year -1)
Year 1 Capital Costs
Sustaining Capital Cost
Total Mine Capital
Payable Copper
Initial 5 Years Average Annual Production
Average Annual Production – LOM
Total LOM Production
Payable Molybdenum
Initial 5 Years Average Annual Production
Average Annual Production – LOM
Total LOM Production
Copper Concentrate
Initial 5 Years Average Annual Production
Average Annual Production – LOM
Total LOM Production
Molybdenum Concentrate
Initial 5 Years Average Annual Production
Average Annual Production – LOM
Total LOM Production
Cash Costs – Year 1 to Year 5
Copper Cash Cost without Credits (Mo, Au, Ag)
Copper Cash Cost with Credits (Mo, Au, Ag)
Cash Costs – LOM
Copper Cash Cost without Credits (Mo, Au, Ag)
Copper Cash Cost with Credits (Mo, Au, Ag)
Net Annual Cash Flow
Year 1 to Year 5
LOM
62
Units
$/t plant feed
years
(M$)
(M$)
(M$)
(M$)
(Mlb)
(Mlb)
(Mlb)
(Mlb)
(Mlb)
(Mlb)
dmt
dmt
dmt
dmt
dmt
dmt
$/lb
$/lb
$/lb
$/lb
(M$)
(M$)
Value
10.22
24
1,010.4
272.9
562.1
1,845.4
217
214
5,144
1.9
1.5
36.4
340,800
336,900
8,085,800
1,600
1,300
30,400
1.80
1.60
1.66
1.46
187.3
227.4
Figure 5 – Spider Graph of Sensitivity of NPV7.5% (Post-Tax)
2,000
1,500
)
s
n
o
i
l
l
i
l
m
$
(
e
u
a
V
t
n
e
s
e
r
P
t
e
N
1,000
500
0
‐500
‐20%
‐10%
Base
10%
20%
Recovery
Metal Price
Capital Cost
Operating Cost
Figure 6 – Spider Graph of IRR Sensitivity (Post-Tax)
)
%
(
n
r
u
t
e
R
f
o
e
t
a
R
l
a
n
r
e
t
n
I
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
‐20%
‐10%
Base
10%
20%
Recovery
Metal Price
Capital Cost
Operating Cost
The greatest sensitivity for developing the Ann Mason deposit is metal prices. The Base Case prices that are used
consider a price of copper at $3.00/lb. Three-year trailing average price for copper as of September 17, 2012 was
$3.61/lb. The Base Case copper price is 27% lower than the three-year average. A further 20% reduction of that price
would see a copper price of $2.40/lb.
63
The second most sensitive parameter is recovery. To calculate the sensitivity to recovery, a percentage factor was applied
to each metal recovery in the same proportion. Therefore, while sensitivity exists, actual practice may show less
fluctuation than is considered in this analysis. Recovery testwork has not indicated recoveries in the range of 75% which
the -20% change in recovery would represent. As copper represents 93.2% of the revenue, this large a swing in recovery
has the obvious effect of influencing the economics, but may not be realistic.
The operating cost is the next most sensitive item. With the mine being a bulk mining operation, focus on this cost is
instrumental to maintaining attractive project economics. Any opportunity to shorten waste hauls would have a positive
effect on the economics.
The least most sensitive item is capital cost. While changes in the cost have an effect, in comparison to the other three
parameters, its effect is less significant. If the capital costs go up by 20%, the post-tax NPV7.5 drops to $434 million from
$690 million.
Federal and Nevada State taxes have been considered applying, among other things, the appropriate depreciation and
depletion calculations. Taxable income for income tax purposes is as defined in the Internal Revenue Code and
regulations issued by the Department of Treasury and the Internal Revenue Service. The Federal income tax rate is
approximately 35% in accordance with Internal Revenue Service Publication 542.
Nevada does not have a State corporate income tax. However, Nevada has a Net Proceeds of Mining Tax, which is an ad
valorem property tax assessed on minerals mined or produced in Nevada when they are sold or removed from the State.
The tax is separate from, and in addition to, any property tax paid on land, equipment and other assets. In general, while
the tax rate applied to the net proceeds is based on a sliding scale depending on the net proceeds as a percentage of gross
proceeds, the effective rate is 5%.
No royalties are payable to the United States Government for the Ann Mason Project, and at the time of preparation of the
PEA, no other royalties were applicable for the project.
Environmental
In the course of considering Entrée’s approved PlanOp, the BLM prepared an Environmental Assessment (the "EA") that
considered the potential impact of the PlanOp on the environment. Substantial environmental studies were conducted in
the preparation of the EA. These studies documented that historic and pre-historic cultural resources, habitat of certain
special interest species of plants and wildlife, and other concerns exist or could exist in the vicinity of Ann Mason.
Mining has been a significant business in Nevada for many years, and many mines have been permitted on the public
lands in Nevada. Consequently the regulatory agencies are familiar with mining activities, and complying with the
respective agency permit application requirements allows permits to be issued in a rather timely manner. The most
important, time consuming, and costly permits/approvals required for the development of Ann Mason are:
Plan of Operations approval by the BLM.
Water Pollution Control Permit from the NDEP - BMRR.
Reclamation Permit from the BMRR.
Air Quality Permit from the NDEP - Bureau of Air Pollution Control.
Special Use Permit from Lyon County and Development Permit from Douglas County.
With the completion of the PEA, Entrée gained a better understanding of the size and scope of the Ann Mason Project. In
the second quarter of 2013, Entrée commenced certain data collection and testwork to begin preparation for the next stage
of study and ultimately permit applications. The baseline environmental studies that were undertaken included wildlife,
biology, archaeology and cultural surveys and Waters of the US ("WOUS") delineation. These studies were largely
complete in early 2014 except for raptor field surveys, final report writing, and a follow-up WOUS submission to the US
Corps of Engineers. Wildlife, vegetation and cultural field surveys and reports were complete by late 2014 and no
significant obstacles to the development of Ann Mason were identified. The US Corps of Engineers has verbally approved
the WOUS report finding of no wetlands subject to US Corps of Engineers jurisdiction within the Ann Mason Project area
but are now waiting for United States Environmental Protection Agency approval.
64
Basic data collection needs to cover a wide range of diverse subjects: weather, water flows, vegetation, wildlife, and
socioeconomic. A comprehensive program will need to be established to collect the required information necessary to
comply with the respective agency permit application requirements. This is of critical importance to ensure that the
permits may be issued in a timely manner.
A detailed prefeasibility plan will be required to build upon the other information collected. Data collection and test work
should coincide with portions of the permit application process. Detailed environmental and engineering information
must be collected in at least the following areas:
Seasonal data of at least 12 months may be required for some of the elements above.
Reclamation of mine activities will be a significant part of the BLM Plan of Operations and the BMRR, and
plans for closure must be approved by both agencies prior to initiation of mining activities. Entrée will
work with both agencies to develop cost effective reclamation methods including reclamation concurrently
with mine operations as appropriate. Reclamation costs will be developed along with detailed mine
development plans, and an acceptable reclamation bond will be posted with the BLM.
All aspects of the Ann Mason Project must be designed and operated to avoid and/or minimize environmental impacts as
required by the permits. Air quality, water quality, and operating parameters will be monitored, also as required by the
permits. Specific details of Ann Mason design, operation, and monitoring will be developed through consultation with the
appropriate agencies and through preparation of specific permit applications.
In general, Lyon and Douglas Counties and the state of Nevada are receptive to metal mining activities, and mining
provides a large part of local and state revenue. The Company will work with Lyon and Douglas Counties and nearby
towns including Yerington, Weed Heights, Mason and communities in Smith Valley to reduce potential impacts.
Near Term Exploration and Development Plans
With the completion of a positive PEA study, Entrée is now evaluating the most efficient and effective way of advancing
the Ann Mason Project to prefeasibility.
On July 16, 2014, the Company announced the commencement of a prefeasibility drill program, designed to upgrade the
mineral resources contained in the PEA Phase 5 pit from Indicated and Inferred to a mix of Measured and Indicated
categories. The infill drill program commenced in August 2014 and was completed in late January 2015. The program
comprised 40 holes and a total of approximately 19,265 metres combined RC pre-collars and core.
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. The Company commenced a prefeasibility metallurgy program in the first quarter of 2015,
and plans to release an updated resource estimate for the Ann Mason deposit and an updated PEA in the second quarter of
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. These include the
Roulette, Blackjack IP and Blackjack Oxide targets and the Minnesota copper skarn target. In the Blackjack area, IP and
surface copper oxide exploration targets have been identified for drill testing. The Minnesota skarn target requires further
drilling to test deeper IP and magnetic anomalies. The Shamrock and Ann South targets comprise several small-scale
historical mines and skarn-related copper showings in the southeast portion of the project.
Entrée anticipates minimal field work in 2015 pending improvement in metal prices and in the mining investment
environment. The Company is continuing to consider strategic partnerships, joint ventures and similar arrangements that
would help facilitate the development of the project.
65
MONGOLIA
Lookout Hill Property
Bernard Peters, B.Eng. (Mining), FAusIMM, employed by OreWin Pty Ltd as Technical Director – Mining, and a QP as
defined in NI 43-101, has approved the scientific and technical information in this section of the Annual Report.
Lookout Hill is comprised of two mining licences: Shivee Tolgoi and Javhlant. Shivee Tolgoi and Javhlant completely
surround OTLLC’s Oyu Tolgoi mining licence and host the Hugo North Extension copper-gold deposit and the Heruga
copper-gold-molybdenum deposit respectively (Figure 1 above). The Lookout Hill mining licences are held by a wholly
owned subsidiary, Entrée LLC.
The Shivee Tolgoi and Javhlant mining licences are divided between Entrée and the Entrée-OTLLC Joint Venture as
follows:
The Entrée-OTLLC Joint Venture covers 39,807 ha consisting of the eastern portion of the Shivee Tolgoi
and all of the Javhlant mining licences. The Joint Venture Property is contiguous with, and on three sides
(to the north, east, and south) surrounds OTLLC’s Oyu Tolgoi mining licence. The Joint Venture Property
hosts the Hugo North Extension deposit and the Heruga deposit. OTLLC is the manager of the Entrée-
OTLLC Joint Venture.
The portion of the Shivee Tolgoi mining licence outside of the Joint Venture Property ("Shivee West")
covers an area of 35,173 ha. Shivee West is 100% owned by Entrée, but is subject to a first right of refusal
by OTLLC.
The original Javhlant and Shivee Tolgoi exploration licences were converted to mining licences by MRAM in October
2009 as a condition precedent to the Investment Agreement.
A mining licence may be granted for up to 30 years, plus two subsequent 20 year terms (cumulative total of 70 years).
After issuance of a mining licence, holders are required to pay to the Mongolian Government an annual licence fee for
gold or base metal projects. Historically, the annual licence fee was $15.00 per hectare, or approximately $1.1 million, of
which OTLLC was responsible for approximately $500,000. In February 2015, MRAM set the per hectare fee at 21,750
Tugriks, equivalent to approximately $11.50. The total estimated annual fee in order to maintain both of the licences in
good standing is approximately $0.9 million, of which OTLLC is responsible for approximately $0.4 million.
The following table is a summary of the Lookout Hill mining licences and their renewal status:
Licence Name
Javhlant
Shivee Tolgoi
Licence Number
15225A
15226A
Date Granted
October 27, 2009
October 27, 2009
Renewal Date
October 27, 2039
October 27, 2039
Expiration Date
To Be Determined
To Be Determined
On February 27, 2013, Notice was delivered to Entrée by MRAM that by Order No. 43 dated February 22, 2013, the
Ministry of Mining has cancelled the 2009 Order registering the Hugo Dummett (including the Hugo North Extension)
and Heruga reserves. The Notice states that the 2009 Order breached Clause 48.4 of the Minerals Law of Mongolia and
Clause 9 of the Charter of the Minerals Resource Council. The Notice further advises that any transfer, sale, or lease of
the Shivee Tolgoi and Javhlant mining licences is temporarily restricted. On September 4, 2013, the Minister of Mining
issued Order No. 179, advising the Minerals Professional Council to re-submit its previous conclusions regarding the
reserves to MRAM for review and registration. On September 6, 2013, the head of MRAM ordered that the Hugo
Dummett (including the Hugo North Extension) and Heruga reserves be registered. Entrée was also subsequently advised
that the temporary transfer restriction on the joint venture mining licences will be lifted.
On April 2, 2013, the Company filed a technical report titled "Technical Report 2013 on the Lookout Hill Property"
("LHTR13"), dated March 28, 2013. Bernard Peters, B.Eng. (Mining), FAusIMM, a QP as defined in NI 43-101, was a
Qualified Person in LHTR13 and was responsible for the overall report preparation and mineral reserves. For additional
information regarding the assumptions, qualifications and procedures associated with the scientific and technical
information regarding the Lookout Hill property, reference should be made to the full text of LHTR13, which is available
for review on SEDAR located at www.sedar.com or on www.entreegold.com.
66
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.
Property Location and Accessibility
Lookout Hill is located within the Aimag of Ömnögovi (also spelled Umnogobi) in the South Gobi region of Mongolia (an
"Aimag" is the local equivalent of a state or province), about 570 kilometres south of the capital city of Ulaanbaatar and
80 kilometres north of the border with China.
The city of Ulaanbaatar has the nearest international airport to the property with regularly scheduled commercial flights
from various Asian destinations. The flying times from Seoul, Korea and Beijing, China to Ulaanbaatar are about 2.5
hours and 1.5 hours, respectively. Access to the project by road is possible year round; however, the unpaved sections of
the road may be in poor condition. Short periods of no road access can occur, due to frequent heavy winds and dust
storms, or more rarely, snowstorms in the winter. The driving time for the trip from Ulaanbaatar by 4-wheel drive truck to
the site is approximately 8-12 hours.
Alternatively, access is possible by charter or scheduled air service, to the Khanbumbat permanent airport at the north
boundary of the Shivee Tolgoi licence (Figure 1 above). Flying time from Ulaanbaatar is approximately 1.5 hours.
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 project. In addition, Entrée maintains close contact with the district officials as part of its community
relations efforts.
Climate, Local Resources, Physiography
The Lookout Hill property is located in the southern Gobi desert near average elevation 1,180 masl. The surrounding
topography is very flat with low rising hills up to elevation 1350 masl within 40-kilometres of the site. The main regional
drainage is the Umdai River, which flows southward through the project area during periods of rainfall. The Lookout Hill
project area is located within the closed Central Asian drainage basin and has no outflow to the ocean. Most riverbeds in
this drainage basin are ephemeral creeks that remain dry most times of the year.
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 80 mm, 90% of which falls in the form of rain with the
remainder as snow. Snowfall accumulations rarely exceed 50 mm. Maximum rainfall events of up to 43 mm have been
recorded for short-term storm events. In an average year, rain falls on only 25-28 days and snow falls on 10-15 days.
Local records indicate that thunderstorms are likely to occur between 2 and 8 days a year at the property.
Temperatures range from an extreme maximum of about 36 °C to an extreme minimum of about -31°C. The air
temperature in wintertime fluctuates between -5°C and -31°C. In the coldest month, January, the average temperature
is -12°C.
Wind is usually present at the site. Very high winds are accompanied by sand storms that often severely reduce visibility
for several hours at a time. The records obtained from nine months of monitoring at the Oyu Tolgoi weather station show
that the average wind speed in April is 5.5 m/s or 20 km/hr. However, windstorms with gusts of up to 40 m/s (140 km/hr)
67
occur for short periods. Winter snowstorms and blizzards with winds up to 40 m/s occur in the Gobi region between five
and eight days a year. Spring dust storms are far more frequent, and these can continue through June and July.
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.
Regional Geology
The Lookout Hill property lies within the Palaeozoic age Gurvansayhan Terrane in southern Mongolia, a component of
the Altaid orogenic collage, which is a continental-scale tectonic belt dominated by compressional forces. The
Gurvansayhan Terrane consists of highly-deformed accretionary complexes and oceanic island arc assemblages. The
island arc terrane is dominated by basaltic volcanics and intercalated volcanogenic sedimentary rocks (Upper Devonian
Alagbayan Formation), intruded by pluton-sized, hornblende-bearing granitoids of mainly quartz monzodiorite ("Qmd") to
possibly granitic composition. Carboniferous-age sedimentary rocks (Sainshandhudag Formation) overlie this
assemblage.
Major structures in this area include the Gobi–Tien Shan sinistral strike-slip fault system, which splits eastward into a
number of splays in the project area, and the Gobi–Altai Fault system, which forms a complex zone of sedimentary basins
overthrust by basement blocks to the north and northwest.
Local Geology
The Oyu Tolgoi series of porphyry copper-gold deposits occur along a north-northeast corridor with the Hugo North
Extension deposit at the north end and the Heruga deposit at the south end. Mineralization is related to Devonian Qmd
intrusions and associated quartz stockwork. The individual deposits have varied characteristics in regard to host rock,
intrusive bodies, sulphide mineralogy, grade, and alteration.
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 "Heruga sequence", comprising basaltic
flows, volcaniclastic rocks, and siltstones. Only the lower parts of the Devonian sequence host porphyry mineralization
and associated alteration. The Carboniferous Sainshandhudag Formation unconformably overlies the older rocks. Major
Carboniferous or younger faults disrupt the mineralized corridor and bound the western side of most deposits.
The Hugo North Extension deposit within the Joint Venture Property contains copper-gold porphyry-style mineralization
associated with Qmd intrusions, concealed beneath a deformed sequence of Upper Devonian and Lower Carboniferous
sedimentary and volcanic rocks.
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
highest-grade parts of the deposit (with these zones averaging around 3% to 5% copper) and is zoned outward to
chalcopyrite (to zones averaging around 2% copper for the high-grade chalcopyrite dominant mineralization).
The Heruga deposit contains copper-gold-molybdenum porphyry style mineralization hosted in Devonian basalts and
Qmd intrusions, concealed beneath a deformed sequence of Upper Devonian and Lower Carboniferous sedimentary and
volcanic rocks. The deposit is cut by several major brittle fault systems, partitioning the deposit into discrete structural
blocks. Internally, these blocks appear relatively undeformed, and consist of south-east-dipping volcanic and
volcaniclastic sequences. The stratiform rocks are intruded by Qmd stocks and dykes that are probably broadly
contemporaneous with mineralization. The deposit is shallowest at the south end (approximately 500 metres below
surface) and plunges gently to the north.
Recent Exploration – Entrée-OTLLC Joint Venture Property
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 Entrée-OTLLC Joint Venture portion of the Shivee
Tolgoi mining licence in 2012 was 5,626 metres.
68
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% CuEq. The hole shows strongly increasing gold with depth and extends mineralization another
150 metres below the previous limit of mineralization in EJD0034.
In December 2012, EJD0044 was collared at the north end of Heruga on the Javhlant 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 exploration work has been undertaken by OTLLC on the Joint Venture Property since February 2013 and no work is
currently planned for 2015.
Joint Venture Property – Mineral Reserve
Hugo North Extension Indicated mineral resources were used to report Probable mineral reserves in LHTR13. The
engineering has been carried out to a pre-feasibility level or better to estimate the underground mineral reserve. To ensure
that Inferred mineral resources do not become included in the mineral reserve estimate, copper and gold grades of Inferred
mineral resources within the block cave shell were set to zero and, as such, this material was assumed to be dilution. The
block cave shell was defined by a $15/t NSR. Entrée’s Probable mineral reserve on the Hugo North Extension portion of
the Hugo Dummett deposit is the economically mineable portion of the mineral resources.
Table 11 shows the underground mineral reserves for Lift 1 of the Hugo North Extension deposit as reported in LHTR13.
Entrée has a 20% interest in mineralization extracted from the Hugo North Extension deposit.
Table 11 – LHTR13 Entrée-OTLLC Joint Venture Mineral Reserve, Effective March 25, 2013
LHTR13 Entrée-OTLLC Joint Venture Mineral Reserve, March 25, 2013
Classification
Proven
Probable
Total Entrée-OTLLC Joint Venture
Ore
(Mt)
-
31
31
NSR
($/t)
-
95.21
95.21
Cu
(%)
-
1.73
1.73
Au
(g/t)
-
0.62
0.62
Ag
(g/t)
-
3.74
3.74
Cu
Au
Ag
(M lb)
(Moz)
(koz)
-
1,090
1,090
-
521
521
-
3,229
3,229
69
Notes:
Entrée has a 20% interest in the reported mineral reserve.
Metal prices used for calculating the Hugo North Extension underground NSR for mine planning are copper $2.81/lb; gold $970/oz;
and silver $15.50/oz based on long-term metal price forecasts at the beginning of the mineral reserve work. The analysis indicates that
the mineral reserve is still valid at these metal prices.
The NSR has been calculated with assumptions for smelter refining and treatment charges, deductions and payment terms, concentrate
transport, metallurgical recoveries and royalties.
For the underground block cave, all material within the shell has been converted to mineral reserve. This includes Indicated mineral
resources below the resource cut-off grade. It also includes Inferred mineral resources, which have been assigned a zero grade and
treated as dilution.
Only Indicated resources were used to report Probable reserves.
Metal prices used for calculating the financial analysis are as follows: long-term copper at $2.87/lb; gold at $1,350/oz; and silver at
$23.50/oz. Metal prices are assumed to fall from initial prices to the long term average over five years.
The mineral reserves are not additive to the mineral resources.
The mining areas are shown schematically in Figure 7. The location of the Entrée-OTLLC Joint Venture mineral reserve
relative to the OTLLC portion of the Hugo North Lift 1 block cave is depicted in Figure 8.
Figure 7 – LHTR13 Hugo North Lift 1 (Including Hugo North Extension) and SOT Mining Areas
70
Figure 8 – LHTR13 Hugo North (Including Hugo North Extension) Lift 1 Block Cave Plan
In October 2014, Turquoise Hill filed its Oyu Tolgoi 2014 Technical Report ("2014 OTTR"). 2014 OTTR updates the
reserve case for OTLLC’s Southern Oyu Tolgoi ("SOT") open pit as well as Lift 1 of Hugo North, including the Hugo
North Extension deposit. The 2014 OTTR is based on technical, production and cost information contained in OTFS14,
which was finalized and presented to the board of directors of OTLLC in September 2014.
The Probable mineral reserve reported in 2014 OTTR for Lift 1 of the Entrée-OTLLC Joint Venture’s Hugo North
Extension deposit totals 35 Mt grading 1.59% copper and 0.55 g/t gold. The effective date of the reserve is September 20,
2014. The reserve was prepared for Turquoise Hill by Bernard Peters, B. Eng. (Mining), FAusIMM. Mr. Peters is also the
QP who was responsible for the overall preparation of LHTR13. While the Company has reviewed the work and agrees
with its results, it does not consider the changes to the Hugo North Extension deposit reserve and the mineral resources
reported in 2014 OTTR to be material.
A comparison of the mineral reserve presented in the LHTR13 to the mineral reserve presented in 2014 OTTR is
summarized in Table 12 below. While there were changes in costs and revenue assumptions in 2014 OTTR, the similarity
of the underlying resource block model has produced a revised mineral reserve that is similar to that of LHTR13.
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.
Table 12 – Entrée-OTLLC Joint Venture Mineral Reserve Comparison
Probable
(Hugo North
Extension -
2014 OTTR
LHTR13
Difference
Ore
(Mt)
35
31
4
Cu
(%)
1.59
1.73
-0.14
Au
(g/t)
0.55
0.62
-0.07
% Difference
11.7%
-8.1%
-11.3%
Ag
(g/t)
3.72
3.74
-0.02
-0.6%
71
Recovered Metal
Cu (Mlb)
Au (koz)
Ag (koz)
1,121
1,090
31
2.8%
519
521
-2
-0.4%
3,591
3,229
361
11.2%
Notes:
LHTR13 mineral reserve estimate has the effective date March 25, 2013.
2014 OTTR mineral reserve estimate has the effective date September 20, 2014.
Entrée has a 20% interest in the Hugo North Extension Lift 1 mineral reserve.
In 2014 OTTR, metal prices used for calculating the Hugo North Extension underground NSR for mine planning are as follows: copper at
$3.01/lb; gold at $1,250/oz; and silver at $20.37/oz, all based on long-term metal price forecasts at the beginning of the mineral reserves work. The
analysis indicates that the mineral reserves are still valid at these metal prices.
The NSR has been calculated with assumptions for smelter refining and treatment charges, deductions and payment terms, concentrate transport,
metallurgical recoveries and royalties.
For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. In both cases, this includes mineral
resources below the resource cut-off grade. In both cases it also includes Inferred mineral resources, which have been assigned zero grades and
treated as dilution.
In 2014 OTTR, Measured and Indicated mineral resources were used to report Probable mineral reserves for Hugo North Extention. No
Measured mineral resource was included in the resource estimate in LHTR13.
In 2014 OTTR, metal prices used for calculating the financial analysis are as follows: long-term copper at $3.08/lb; gold at $1,304/oz; and silver at
$21.46/oz. Metal prices are assumed to fall from initial prices to the long-term average over five years.
The mineral reserves reported above are not additive to the mineral resources.
The mineral reserve and resource estimates presented above have been calculated in accordance with NI 43-101 as
required by the Canadian securities regulatory authorities, which differ from the standards of the SEC. The resource
estimates contained in this discussion would not be permitted in reports of U.S. companies filed with the SEC. See,
"Cautionary Note to United States Investors Regarding Mineral Reserve and Resource Estimates".
Joint Venture Property – Mineral Resources
The following Table 13 summarizes the mineral resources for the Hugo North Extension deposit and the Heruga deposit
as reported in LHTR13. The mineral resource estimate for the Hugo North Extension deposit is effective as of February
20, 2007 and is based on drilling completed to November 1, 2006. The Heruga mineral resource estimate is effective as of
March 30, 2010 and is based on drilling completed to June 21, 2009.
The base case CuEq grade assumptions for the Hugo North Extension and Heruga deposits were determined using
operating cost estimates from the Oyu Tolgoi project mineral reserves and using cut-off grades applicable to mining
operations exploiting similar deposits. The CuEq cut-off applied for underground resources was 0.37%.
72
Table 13 – LHTR13 Entrée - OTLLC Joint Venture Mineral Resources (0.37% CuEq cut-off)
Deposit
Tonnage
(Mt)
Copper
(%)
Gold
(g/t)
Silver
(g/t)
Molybdenum
(ppm)
CuEq
(%)
Grades
Hugo North Extension Deposit
Indicated Shivee Tolgoi
(Hugo North Extension)
Inferred Shivee Tolgoi
(Hugo North Extension)
Heruga Deposit
Inferred Javhlant
(Heruga)
132
134
1.65
0.93
0.55
0.25
4.09
2.44
35.7
23.6
2.00
1.09
1,824
0.38
0.36
1.35
110
0.67
Deposit
Copper
(Mlb)
Hugo North Extension Deposit
Indicated Shivee Tolgoi
(Hugo North Extension)
Inferred Shivee Tolgoi
(Hugo North Extension)
Heruga Deposit
Inferred Javhlant
(Heruga)
4,800
2,760
15,190
Gold
(Moz)
2.32
1.08
21.2
Contained Metal
Silver
(Moz)
Molybdenum
(Mlb)
CuEq
(Mlb)
17.4
10.5
10.4
7.0
5,810
3,230
79.4
444
26,850
Notes:
Entrée has a 20% interest in mineralization extracted from the Hugo North Extension and Heruga deposits.
CuEq has been calculated using assumed metal prices of $1.35/lb for copper, $650/oz for gold and $10.00/lb for molybdenum. The
equivalence formula was calculated assuming that gold and molybdenum recovery was 91% and 72% of copper recovery respectively.
CuEq was calculated using the formula: CuEq% = Cu% + ((Au g/t*18.98)+(Mo g/t*.01586))/29.76. Silver is not included in the CuEq
calculation.
The contained copper, gold, silver and molybdenum in the tables have not been adjusted for metallurgical recovery.
The 0.37% CuEq cut-off is highlighted as the base case resource for underground bulk mining.
Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Entrée has reviewed the resource estimate presented in 2014 OTTR, and, while the Company agrees with its conclusions,
it does not consider the changes to the resource estimate for the Joint Venture Property reported in 2014 OTTR to be
material. Mineral resources are classified in accordance with the CIM Definition Standards for Mineral Resources and
Mineral Reserves and are prepared in accordance with NI 43-101. Mineral resources that are not mineral reserves do not
have demonstrated economic viability.
The base case cut-off grade of 0.37% CuEq remains the same as in LHTR13. The resource model has been updated for the
Hugo North Extension deposit but remains the same as reported previously for Heruga. The formula used to calculate
copper equivalency has been updated in 2014 OTTR for each deposit.
Reconciliation of LHTR13 and 2014 OTTR Mineral Resources
Comparisons of the LHTR13 and 2014 OTTR mineral resources for the Hugo North Extension and Heruga deposits are
shown in Table 14 and Table 15, respectively, below.
The Hugo North Extension Indicated and Measured mineral resource estimate in 2014 OTTR is very similar to the
LHTR13 Indicated mineral resource estimate, with a 2% reduction in tonnage and CuEq metal in 2014 OTTR. In contrast,
the 2014 OTTR Hugo North Extension Inferred mineral resource has increased in estimated tonnage by 34% (45 Mt) from
the LHTR13 estimate, with a 6% increase in copper grade and a 36% increase in gold grade, resulting in a 46% increase in
73
CuEq metal in 2014 OTTR. The 2014 OTTR CuEq formula (see note below) for Hugo North Extension accounts for a
negligible drop in the overall (Measured, Indicated, and Inferred) resource tonnage (<0.1%) and CuEq metal (0.25%)
relative to the LHTR13 mineral resource estimate.
The Heruga resource model has not changed; however, in 2014 OTTR, grades and tonnage have been revised as a result of
changes to the CuEq calculation (see discussion below) and resultant changes to blocks selected above the CuEq cut-off
grade. Revisions to the 2014 OTTR CuEq formula have had a more pronounced effect on the Heruga mineral resource
estimate, with a 7% (124 Mt) drop in tonnage, a 4% drop in copper, gold, silver, and molybdenum contained metals, and a
10% drop in CuEq metal relative to LHTR13.
Table 14 – Hugo North Extension Mineral Resources Comparison
Classification
Tonnage
(Mt)
Cu
(%)
Au
(g/t)
Ag
(g/t)
Mo
(ppm)
CuEq
(%)
Contained Metal
Cu
(Mlb)
Au
(koz)
Ag
(koz)
Mo
(Mlb)
CuEq
(Mlb)
2014 OTTR
Measured
Indicated
Measured + Indicated
Inferred
LHTR13
Measured
Indicated
Measured + Indicated
Inferred
1.2
128
129
179
–
132
132
134
1.38
1.65
1.65
0.99
–
1.65
1.65
0.93
Absolute Difference (2014 OTTR – LHTR13)
Measured
Indicated
Measured + Indicated
Inferred
–
–4
–3
45
–
0.00
0.01
0.06
Percentage Difference (2014 OTTR – LHTR13)
Measured
Indicated
Measured + Indicated
Inferred
Notes:
–
–3%
–2%
34%
–
0%
1%
6%
0.12
0.55
0.55
0.34
–
0.55
0.55
0.25
–
0.00
0.00
0.09
–
0%
0%
2.77
4.12
4.11
2.68
–
4.09
4.09
2.44
–
0.03
0.06
0.24
–
1%
1%
36%
10%
38.4
33.6
33.7
25.4
–
35.7
35.7
23.6
–
–2.1
–1.7
1.8
–
–6%
–5%
8%
1.47
1.99
1.99
1.20
–
2.00
2.00
1.09
–
–0.01
0.01
0.11
–
0%
0%
10%
36
4
105
4,663
2,271
16,988
4,698
2,276
17,091
3,887
1,963
15,418
–
–
–
4,800
2,320
17,400
4,800
2,320
17,400
0.1
9.5
9.6
10
–
10
10
38
5,633
5,670
4,730
–
5,810
5,810
2,760
1,080
10,500
7.0
3,230
–
–137
–102
1,127
–
–3%
–2%
41%
–
–49
–44
883
–
–2%
–2%
82%
–
–412
–309
4,918
–
–2%
–2%
47%
–
–0.9
–0.8
–
–177
–140
3.0
1,500
–
–9%
–8%
43%
–
–3%
–2%
46%
Entrée has a 20% interest in mineralization extracted from the Hugo North Extension deposit.
LHTR13:
o
CuEq has been calculated using assumed metal prices of $1.35/lb for copper, $650/oz for gold and $10.00/lb for molybdenum.
The equivalence formula was calculated assuming that gold and molybdenum recovery was 91% and 72% of copper recovery
respectively. CuEq was calculated using the formula: CuEq% = Cu% + ((Au g/t*18.98)+(Mo g/t*.01586))/29.76. Silver is not
included in the CuEq calculation.
The 0.37% CuEq cut-off is highlighted as the base case resource for underground bulk mining.
Effective date for the mineral resources for Hugo North Extension is 28 March 2014.
The 0.37% CuEq cut-off is equivalent to the underground mineral reserve cut-off determined by OTLLC.
CuEq has been calculated using assumed metal prices ($3.01/lb for copper, $1,250/oz for gold and $20.37/oz for silver).
HNE CuEq% = Cu% + (( Au (g/t) x 1,250 x 0.0321507 x 0.913) + ( Ag (g/t) x 20.37 x 0.0321507 x 0. 942)) / (3.01 x
22.0462)
The contained copper, gold, silver and molybendum in the table have not been adjusted for metallurgical recovery.
Totals may not match due to rounding.
Mineral resources that are not mineral reserves do not have demonstrated economic viability.
The mineral reserves are not additive to the mineral resources.
74
o
2014 OTTR:
o
o
o
Inferred
Notes:
o
2014 OTTR:
o
o
o
Table 15 – Heruga Mineral Resource Comparison
Classification
Tonnage
(Mt)
Cu
(%)
Au
(g/t)
Ag
(g/t)
Mo
(ppm)
CuEq
(%)
Contained Metal
Cu
(Mlb)
Au
(koz)
Ag
(koz)
Mo
(Mlb)
CuEq
(Mlb)
2014 OTTR
Inferred
LHTR13
Inferred
1,700
0.39
0.37
1.39
113.2
0.64
14,610
20,428
75,955
424
24,061
1,824
0.38
0.36
1.35
110.4
0.67
15,190
21,200
79,400
444
26,850
Absolute Difference (2014 – 2013)
Inferred
–124
0.01
0.01
0.04
2.8
–0.03
–580
–772
–3,445
–19
–2,789
Percentage Difference (2014 / 2013)
–7%
3%
4%
3%
3%
–4%
–4%
–4%
–4%
–4%
–10%
Entrée has a 20% interest in mineralization extracted from the Heruga deposit.
LHTR13:
o
CuEq has been calculated using assumed metal prices of $1.35/lb for copper, $650/oz for gold and $10.00/lb for molybdenum.
The equivalence formula was calculated assuming that gold and molybdenum recovery was 91% and 72% of copper recovery
respectively. CuEq was calculated using the formula: CuEq% = Cu% + ((Au g/t*18.98)+(Mo g/t*.01586))/29.76. Silver is not
included in the CuEq calculation.
The 0.37% CuEq cut-off is highlighted as the base case resource for underground bulk mining.
Effective date for the mineral resource for Heruga is 30 March 2010.
The 0.37% CuEq cut-off is equivalent to the underground mineral reserve cut-off determined by OTLLC.
CuEq has been calculated using assumed metal prices ($3.01/lb for copper, $1,250/oz for gold, $20.37/oz for silver, and $11.90/lb
for molybdenum).
Heruga CuEq% = Cu% + (( Au (g/t) x 1,250 x 0.0321507 x 0.911) + ( Ag (g/t) x 20.37 x 0.0321507 x 0. 949) + (Mo
(ppm) x 11.9 x 0.0022046 x 0.736)) / (3.01 x 22.0462)
The contained copper, gold, silver, and molybdenum in the table have not been adjusted for metallurgical recovery.
Totals may not match due to rounding.
Mineral resources that are not mineral reserves do not have demonstrated economic viability.
The mineral reserve and resource estimates presented above have been calculated in accordance with NI 43-101 as
required by the Canadian securities regulatory authorities, which differ from the standards of the SEC. The resource
estimates contained in this discussion would not be permitted in reports of U.S. companies filed with the SEC. See,
"Cautionary Note to United States Investors Regarding Mineral Reserve and Resource Estimates".
Hugo North Extension Deposit
The Hugo North Extension deposit within the Joint Venture Property contains copper–gold porphyry-style mineralization
associated with Qmd intrusions, concealed beneath a deformed sequence of Upper Devonian and Lower Carboniferous
sedimentary and volcanic rocks.
The copper sulphides in the high-grade zone at Hugo North Extension comprise relatively coarse bornite impregnating
quartz and disseminated in wall rocks of varying composition, usually intergrown with subordinate chalcopyrite. Bornite
is dominant in the highest-grade parts of the deposit (with these zones averaging around 3% to 5% copper) and is zoned
outward to chalcopyrite (to zones averaging around 2% copper for the high-grade chalcopyrite dominant mineralization).
Bornite and chalcopyrite are important copper bearing minerals that contain approximately 63% and 35% copper
(respectively) in their crystal structure. Higher grade gold values within the Hugo North Extension mineralized system are
associated with the presence of bornite.
Heruga Deposit
The Heruga deposit within the Joint Venture Property contains copper-gold-molybdenum porphyry style mineralization
hosted in Devonian basalts and Qmd intrusions, concealed beneath a deformed sequence of Upper Devonian and Lower
Carboniferous sedimentary and volcanic rocks. The deposit is cut by several major brittle fault systems, partitioning the
75
deposit into discrete structural blocks. Internally, these blocks appear relatively undeformed, and consist of
southeast-dipping volcanic and volcaniclastic sequences. The stratiform rocks are intruded by Qmd stocks and dykes that
are probably broadly contemporaneous with mineralization. The deposit is shallowest at the south end (approximately
500 metres below surface) and plunges gently to the north.
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.
Modelling of mineralization zones for resource estimation purposes revealed that there is an upper copper-driven zone and
a deeper gold-driven zone of copper-gold mineralization at Heruga. In addition, there is a significant carapace-like zone
of molybdenum mineralization (100 ppm to 1,000 ppm) in the form of molybdenite.
CuEq Formula Derivation
Copper equivalence formulas incorporate copper, gold, and silver for Hugo North Extension, and also molybdenum for
Heruga. The assumed metal prices in LHTR13 are $1.35/lb for copper, $650/oz for gold and $10.00/lb for molybdenum.
Silver was not included in the CuEq calculation. The assumed metal prices in 2014 OTTR are $3.01/lb for copper,
$1,250/oz for gold, $20.37/oz for silver, and $11.90/lb for molybdenum.
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. In
LHTR13 a single formula was used for Hugo North including Hugo North Extension and the same formula was used for
Heruga with the addition of a factor for molybdenum. In 2014 OTTR the metallurgical recovery factor varies for each
deposit.
Sampling, Analysis and Security – Joint Venture Property
Split core samples were prepared for analysis at the on-site sample preparation facility operated by SGS Mongolia. The
prepared pulps were then shipped by air under the custody of OTLLC to Ulaanbaatar, where they were assayed at a
laboratory (lab) facility operated by SGS Mongolia.
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 less than 2% copper and one
greater than 2% copper if higher-grade mineralization is present based on visual estimates). These were generally small
and not consistent and therefore considered acceptable. OTLLC’s sample preparation, analytical and QA/QC procedures
and the sample security measures in place during resource drilling adhered to industry standards and the drill samples are
considered acceptable for resource estimation purposes.
2014 OTTR Reserve Case Development Plan
The reserve case discussed in LHTR13 and updated in 2014 OTTR (the "Reserve Case"), using Proven and Probable
mineral reserves, sets out the likely path of initial mine development and includes nine open pit stages at SOT and the
initial underground block cave (Lift 1) at Hugo North (including the Entrée-OTLLC Joint Venture’s Hugo North
Extension). The Reserve Case assumes the processing of 1.5 billion tonnes of ore over a 41 year period at 100 ktpd from
the Hugo North (including Hugo North Extension) and SOT deposits (Table 16). Plans for the further development of Lift
1 are at the feasibility stage.
TRQ reported in the 2014 OTTR that in August 2013, development of the underground mine was suspended to allow
matters between OTLLC, TRQ, Rio Tinto and the Government of Mongolia to be resolved. Further underground
development is subject to resolution of OTLLC shareholder issues including the tax dispute described above, approval of
OTFS14 by OTLLC’s shareholders and acceptance by the Mongolian Minerals Council, agreement of a comprehensive
funding plan including project finance, and receipt of all necessary permits. The project financing is subject to the
unanimous approval of the OTLLC board of directors, which includes representatives from the Government of Mongolia.
This delay has in turn postponed the timing of decisions relating to any expansions of the underground operations. The
2014 OTTR production estimates assumed early works recommenced in the third quarter of 2014. This has yet to occur as
76
of the date of the filing of this Annual Report. There can be no assurance that outstanding shareholder matters will be
resolved in a satisfactory manner or that Oyu Tolgoi project financing will be available on the currently proposed terms, or
at all, or within a reasonable time frame to permit development of the underground mine, including the Hugo North
Extension deposit and the Heruga deposit, within current cost estimates, on schedule or at all. Further, there can be no
assurance that the corporate, governmental and other approvals required to implement Oyu Tolgoi project financing will
be obtained.
Highlights of the Reserve Case include:
Underground block cave mine production remains at 95 ktpd.
The plant rate remains at the nominal 100 ktpd.
Underground ore handling will be conveyed to surface via decline, which opens the project to additional
production flexibility and future optionality. The mine plan still makes use of the existing shafts and the
planned shafts that are defined in LHTR13. The combined capacity of the decline conveyor and shafts will
be 130-140 ktpd.
Increased dilution and draw point losses have negatively impacted the OTLLC licence side more that the
Entrée-OTLLC Joint Venture side.
Several alternative production cases are also discussed in 2014 OTTR (see below), which if implemented
would allow for continuous improvement in plant throughput and plant expansions up to 350 ktpd.
Table 16 – Entrée-OTLLC Joint Venture Summary Production and Financial Results
Description
Units
LHTR13 Reserve
Case
2014 OTTR Reserve Case
Total Mineral Reserve Inventory (entire Lift 1 and SOT)
Production Rate (average)
Total Processed – OTLLC & Joint Venture
Copper
Gold
Silver
Mtpa
billion t
Metal Prices
$/lb
$/oz
$/oz
36.5
1.5
2.87
1,350
23.50
Entrée-OTLLC Joint Venture Property Results
Processed
NSR
Cu Grade
Au Grade
Ag Grade
Copper Recovered
Gold Recovered
Silver Recovered
NPV5% After Tax (long-term prices) (Entrée’s
20% interest only)
Mt
US$/t
%
g/t
g/t
billion lb
Moz
Moz
US$M
31
95.21
1.73
0.62
3.74
1.1
0.5
3.2
110
36.5
1.5
3.08
1,304
21.46
35
99.69
1.59
0.55
3.72
1.1
0.5
3.6
102
Notes:
Entrée has a 20% interest in Entrée-OTLLC Joint Venture Property mineralization. Unless otherwise noted above, results are for the entire Entrée-
OTLLC Joint Venture.
LHTR13 metal prices used for calculating the financial analysis are as follows: long-term copper at $2.87/lb; gold at $1,350/oz; and silver at
$23.50/oz. 2014 OTTR metal prices used for calculating the financial analysis are as follows: long-term copper at $3.08/lb; gold at $1,304/oz; and
silver at $21.46/oz. The analysis has been calculated with assumptions for smelter refining and treatment charges, deductions and payment terms,
concentrate transport, metallurgical recoveries and royalties.
In LHTR13, for mine planning the metal prices used to calculate block model NSR were copper at $2.81/lb; gold at $970/oz; and silver at
$15.50/oz. The NSR shown above for 2014 OTTR was calculated by Entrée from the OTFS14 financial model, using the following metal prices:
copper at $3.01/lb; gold at $1,250/oz; and silver at $20.37/oz.
Underground (including some mining costs) costs used to determine cut-off grades are based on $15.34/t in LHTR13 and $15.00/t in 2014 OTTR.
77
For the underground block cave, all mineral resources within the shell have been converted to mineral reserves. This includes Indicated mineral
resources below the resource cut-off grade. It also includes Inferred mineral resources, which have been assigned a zero grade and treated as
dilution.
In 2014 OTTR, for Hugo North Extension, Measured and Indicated mineral resources were used to report Probable mineral reserves. In LHTR13,
no Measured mineral resources were reported.
The mineral reserves reported above are not additive to the mineral resources.
The LHTR13 economic analysis has been calculated from the start of 2012. In 2014 OTTR, economic analysis has been calculated from the start
of 2015 and excludes 2014. Costs shown are real costs not nominal costs. Expansion capital includes only direct project costs and does not include
non-cash shareholder interest, management fees, tax pre- payments, forex adjustments, exploration phase expenditure.
Entrée’s after tax NPV8% shown above for 2014 OTTR was calculated by Entrée using the OTFS14 financial model.
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.
Using the OTFS14 financial model, the Company calculated that the impact on Entrée’s after tax NPV8% from the 2014
OTTR would be an approximate decrease of $8 million from $110 million reported in LHTR13 to $102 million. This is
mainly due to a development delay on the Hugo North (including Hugo North Extension) block cave and a subsequent
two year delay on the Hugo North Extension ore. The NPV8% case is also impacted by more cautious cave performance
assumptions, which led to a reduction in recovered metal and a slowing of cave ramp-up.
The Hugo North (including Hugo North Extension) block cave is scheduled to commence in 2019 with Lift 1 Entrée-
OTLLC Joint Venture development scheduled to start in 2020 (previously 2019). Entrée-OTLLC Joint Venture cave
production is scheduled to commence in 2025 (previously 2023). Peak production from Hugo North Extension would be
reached in 2030 with an estimated production of 8.3 Mt at 1.82% copper and 0.69 g/t gold. Production from Lift 1 at Hugo
North Extension is estimated to last until approximately 2033. Underground development at Oyu Tolgoi is currently
halted and the timing of development and production is subject to change.
Capital costs (excluding sustaining) for development of the entire Hugo North (including Hugo North Extension)
underground block cave are estimated at $4.9 billion – approximately $255 million of which will be the responsibility of
Entrée. Under the terms of the Entrée-OTLLC Joint Venture, Entrée elected to have OTLLC debt finance Entrée’s share
of costs with interest accruing at OTLLC’s actual cost of capital or prime plus 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 sale of Entrée’s share of products.
A plan showing Hugo North (including Hugo North Extension) Lifts 1 and 2 relative to the mining licence boundaries is
shown in Figure 9 below. Figure 10 shows an isometric view of the two lifts.
78
Figure 9 –Hugo North Lift 1 (Orange) and Lift 2 (Red)
Figure 10 – Isometric View of Hugo North Lift 1 and Lift 2
79
2014 OTTR Alternative Production Cases
OTLLC has undertaken strategic planning work on alternative production cases that are described in the 2014 OTTR. The
alternative production cases allow for continuous improvement in plant throughput and plant expansions up to 350 ktpd.
Figure 11 shows the development options that have been identified by OTLLC as part of the study planning.
Figure 11 – Oyu Tolgoi Project Development Options
The three alternative production cases considered are:
Case A: 100% plant capacity, with 5% improvement per year for five years to 140 ktpd or 51 Mtpa.
Case B: 125% plant capacity (Case A) with expansion to 260 ktpd or 95 Mtpa after approximately 20 years.
Case C: Progressive plant expansion to 340% plant capacity of 350 ktpd or 128 Mtpa.
Case A assumes that there is an increase in plant throughput productivity of 5% per year for five years and that the
additional mines are developed resulting in approximately 74 years of production. The average throughput rate is
approximately 140 ktpd or 51 Mtpa. The Reserve Case production for the entire Oyu Tolgoi Project (including the Joint
Venture Property) is included in black for comparison in Figure 12.
Case B is an extension of Case A and assumes that the plant capacity is doubled after approximately 20 years to an
average throughput rate of 260 ktpd or 95 Mtpa resulting in approximately 58 years of production. In Case B, Heruga
development would begin approximately 30 years after commencement of Lift 1 on Hugo North (including Hugo North
Extension). The Reserve Case for the entire Oyu Tolgoi project (including the Joint Venture Property) (black) and
alternative production Case A (purple) are included for comparison in Figure 13.
Case C assumes that there are progressive plant expansions to a rate of 350 ktpd or 128 Mtpa. With each successive
expansion case there is a reduction of the mine life that would necessitate the success of further exploration to continue
production. In Case C, this would be required to bring the exploration potential to production in approximately 30 years.
In Case C, Heruga development would begin approximately 12 years after commencement of Lift 1. Both scenarios could
have a significant impact on project economics. The Reserve Case for the entire Oyu Tolgoi project (including the Joint
Venture Property (black), alternative production Case A (purple), and alternative production Case B (orange) are included
for comparison in Figure 14.
Total annual production is 59.0 Mtpa from the SOT open pit and Hugo North (including Hugo North Extension) Lift 1.
80
Figure 12 – Alternative Production Case A
Figure 13 – Alternative Production Case B
81
Figure 14 – Alternative Production Case C
Entrée is currently examining the alternative production scenarios and associated expansion options identified in 2014
OTTR. If the results of such examination lead Entrée to believe that there is a more likely development scenario for the
Joint Venture Property than the Reserve Case, Entrée will issue a press release and file a new technical report as required
under NI 43-101.
Entrée-OTLLC Joint Venture Future Work
Exploration and development of the Joint Venture 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 Joint Venture Property.
Power Supply Determination
Turquoise Hill announced on November 5, 2012, that OTLLC had signed a binding power purchase agreement with the
Inner Mongolia Power Corporation to supply power to the Oyu Tolgoi mine. With the conclusion of the power agreement,
OTLLC completed a seven-week commissioning of the ore-processing equipment. First concentrate production was
completed on January 31, 2013. Commercial production commenced in September 2013.
The Investment Agreement recognized that the reliable supply of electrical power is critical to the mine. The agreement
also confirmed that Turquoise Hill has the right to obtain electrical power from inside or outside Mongolia, including
China, to meet its initial electrical power requirements for up to four years after OTLLC begins commercial production.
The Investment Agreement established that: (a) Turquoise Hill has the right to build or sub-contract construction of a coal-
fired power plant at an appropriate site in Mongolia’s South Gobi Region to supply Oyu Tolgoi; and (b) all of the mine’s
power requirements would be sourced from within Mongolia no later than four years after the start of commercial
production. 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 Oyu Tolgoi as the primary customer. Full evaluation of the independent power producer option was expected to take
9-12 months.
Water Permit
Due to low average annual precipitation in the project area, water management and conservation are given the highest
priority in all aspects of project design.
82
The development of a borefield to access groundwater reserves within the Gunii Hooloi aquifer basin has been established
as the most cost-effective option to meet the raw water demand for the project. Water from the borefield will be required
for process water supply, dust suppression in the mining areas, and potable use. Another major component of the water
management plan is the diversion of the Undai River to accommodate project facilities. Undai River water is not used by
the mine, diversion is to totally preserve this water in the environment. The Undai River diversion was completed in
August 2013.
OTLLC will benchmark its water conservation efforts against other mines by assessing factors such as quantified water
consumption per tonne of concentrate produced. The current water budget is based on the use of 550 L/t, which compares
favourably with other large operations in similar arid conditions. OTLLC is committed to water conservation.
It is also assumed that no water will become available through mine dewatering. Although the need for mine dewatering at
a rate of up to 90 L/s is predicted, this will be at a key stage of the mine development, and the actual flow could be lower.
The total site design water demand ranges from a low of 465 L/s in spring to a high of 1,205 L/s in winter.
Concentrate Marketing
Long-term sales contracts have been signed for 92% of the Oyu Tolgoi mine’s expected concentrate production in 2015
with the remaining volume committed to one customer. Discussions are ongoing to place volumes from 2015 onwards as
some of the existing contracts start to expire from the end of 2015.
Socio-economic Aspects of Mine Closure Plan
The preliminary mine closure and reclamation plan includes provisions to ensure that adverse socio-economic impacts of
mine closure are minimized and positive impacts are maximized. To this end, OTLLC has planned that allowances will be
incorporated into the annual mine operations budget starting 10 years before mine closure to address the costs of:
Lost employment by the mine workforce.
Adverse effects on supply chain businesses and downstream businesses, affected communities, public
services, and infrastructure.
Promoting ongoing sustainability among affected stakeholders and communities.
The details of additional socio-economic aspects of a conceptual mine closure plan have not yet been fully developed and
are the subject of work to be done in the near future.
Shivee West
Entrée has a 100% interest in the western portion of the Shivee Tolgoi mining licence.
Shivee West – Exploration
In 2011, RC drilling was conducted over the Zone III near-surface epithermal gold target and expanded north, where a
new gold zone ("Argo Zone") was discovered 250 metres beyond the previously known area of gold mineralization. The
Argo Zone was partly defined by six RC holes (holes EGRC-11-110 to 115), two trenches and surface chip sampling.
Hole EGRC-11-112 returned 14 metres of 1.82 g/t gold and hole EGRC-11-111 returned 3 metres of 2.21 g/t gold. Two
separate high-grade surface chip samples averaged 42.4 g/t gold over four metres and 19.3 g/t gold over three metres.
Shallow gold mineralization in both zones is hosted by quartz veined felsic volcanic rocks.
In 2012, Entrée completed geological mapping, excavator trenching and sampling in the Argo/Zone III and Khoyor Mod
areas. In total, 22 trenches (1,723 metres) were excavated. The area of Argo gold mineralization was extended 140 metres
further north from mineralization defined by 2011 RC drilling and the Argo Zone now measures approximately 400
metres long by up to 130 metres wide. One of the trench samples returned 81.4 g/t gold over three metres, confirming and
expanding 2011 high-grade gold values.
Khoyor Mod is located approximately six kilometres south of Argo and comprises a 250 metre by 300 metre area of
quartz stockwork within Devonian sediments. The stockwork is anomalous in gold (trace to 0.58 g/t) and copper (67-505
ppm) and is indicative of a porphyry target.
83
No exploration has been completed on Shivee West since 2012, and Entrée does not anticipate further significant
exploration or development work until the current regulatory environment in Mongolia has been stabilized.
Shivee West – Sampling, Analysis and Security
Sampling programs on Shivee West have included soil, rock chip, drill core and RC samples. In 2011 and 2012 sampling
was limited to RC and rock chip (trench) samples. All of the sampling was carried out by Entrée personnel or contractors.
All 2012 samples were submitted to Actlabs Asia LLC in Ulaanbaatar, Mongolia for gold analysis by fire assay/atomic
absorption ("AA") methods on a 30-gram sample and for silver, copper, molybdenum, lead and zinc by 4-acid
digestion/AA method.
No sample preparation is undertaken in the field. Samples of any type for analytical work are collected in uniquely
numbered sample bags with corresponding sample tag inside and stored in a secure facility in the exploration camp until
ready for shipment to the lab. Samples are placed in rice bags and shipped by ground transportation using a locked box,
keys of which are kept in the exploration camp and at the destination laboratory. A chain-of-command document is used
to verify receipt of the samples by the driver and by the analytical laboratory.
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 Entrée’s ownership interest and obligations, see the
Company’s Management’s Discussion and Analysis for the financial year ended December 31, 2014, which is available
on SEDAR at www.sedar.com.
Lordsburg Property, New Mexico. The Lordsburg claims cover 2,013 ha adjacent to the historic Lordsburg
copper-gold-silver district in New Mexico. Drilling at Lordsburg has been successful in discovering a new
porphyry copper-gold occurrence in an area previously known only for vein-style gold mineralization. No
work was completed in 2014. Future drilling will be directed towards expanding the existing drill defined
copper and gold zone.
Blue Rose Joint Venture, Australia. The Blue Rose copper-iron-gold-molybdenum joint venture property
covers exploration licence 5129 in the Olary Region of South Australia, 300 kilometres north-northeast of
Adelaide. Magnetite iron formations occur in the southern portion of this 1,000 square kilometre tenement,
and a zone of copper oxide mineralization and a gold target (Golden Sophia) are located in the north-central
area of the tenement.
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.
Lukkacha Property, Peru. The Lukkacha property is located in Tacna Province of southeastern Peru. 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. The property
is situated within 50 kilometres of the international border with Chile, and initiation of further exploration
(geophysics and drilling) is subject to Entrée obtaining a Supreme Decree allowing it to work on the
property.
Item 4A.
Unresolved Staff Comments
None.
84
Item 5. Operating and Financial Review and Prospects
Overview
We are an exploration stage resource company engaged in exploring mineral resource properties. We have interests in
exploration and development properties in the United States, Mongolia, Australia and Peru. Our two principal advanced
assets are our Ann Mason Project in Nevada and our interest in the Lookout Hill property in Mongolia.
The Ann Mason Project includes the Ann Mason and the Blue Hill deposits, which host Indicated (Ann Mason) and
Inferred mineral resources. The Company reported the results of the Ann Mason deposit PEA on October 24, 2012.
The Lookout Hill property includes mineral resources at the Hugo North Extension and Heruga deposits. The resources at
Hugo North Extension include a Probable reserve, which is included in Lift 1 of the Oyu Tolgoi underground block cave
mining operation. Lift 1 of the Hugo North Extension deposit is scheduled to generate first development production in
2020, although underground development at Oyu Tolgoi is currently halted. A second lift for the Oyu Tolgoi underground
block cave operation, including additional resources from Hugo North Extension, has been proposed but has not yet been
modeled within the existing mine plan.
Our financial statements for the years ended December 31, 2014, 2013, and 2012 have been prepared in accordance with
U.S. GAAP. The consolidated financial statements have been prepared under the historical cost convention, as modified
by financial assets and financial liabilities at fair value through profit or loss. The Company has consistently applied the
same accounting policies throughout all periods presented, as if these policies had always been in effect.
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.
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, 2014. Unlike other numbers in the accounts, this is
a calculated amount not based on historical cost, but on subjective assumptions introduced to an option pricing model, in
particular: (1) an estimate for the average future hold period of issued stock options before exercise, expiry or
cancellation; and (2) future volatility of the Company’s share price in the expected hold period (using historical volatility
as a reference). Given that there is no market for the options and they are not transferable, the resulting value calculated is
not necessarily the value the holder of the option could receive in an arm’s-length transaction.
The Company’s accounting policy is to expense exploration costs on a project by project basis consistent with U.S.
GAAP. The policy is consistent with that of other exploration companies that have not established mineral reserves. When
a mineral reserve has been objectively established further exploration costs would be deferred.
85
Changes in Accounting Policies
In June 2014, the FASB issued ASU No. 2014-10, "Development Stage Entities (Topic 915): Elimination of Certain
Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810,
Consolidation". This ASU does the following, among other things: (1) eliminates the requirement to present inception-to-
date information on the statements of income, cash flows, and shareholders' equity; (2) eliminates the need to label the
financial statements as those of a development stage entity; (3) eliminates the need to disclose a description of the
development stage activities in which the entity is engaged; and (4) amends FASB ASC 275, "Risks and Uncertainties", to
clarify that information on risks and uncertainties for entities that have not commenced planned principal operations is
required. The amendments in ASU No. 2014-10 related to the elimination of Topic 915 disclosures and the additional
disclosure for Topic 275 are effective for public companies for annual and interim reporting periods beginning after
December 15, 2014. Early adoption is permitted. The Company has evaluated this ASU and early adopted for the period
beginning on April 1, 2014.
A detailed summary of all of the Company’s significant accounting policies, changes in accounting policies and the
estimates derived therefrom is included in Note 2 to the Annual Financial Statements for the year ended December 31,
2014.
A.
Operating Results
The following discussion is intended to supplement the audited consolidated financial statements of the Company for the
years ended December 31, 2014, 2013 and 2012, and the related notes thereto, which have been prepared in accordance
with U.S. GAAP. This discussion should be read in conjunction with the audited consolidated financial statements
contained in this Annual Report on Form 20-F. This discussion contains "forward-looking statements" that are subject to
risk factors set out under the heading "Item 3. Key Information – D. Risk Factors". See "Cautionary Note Regarding
Forward-Looking Statements" above.
SELECTED ANNUAL FINANCIAL INFORMATION
Total Revenues
Net Loss
Net loss per share, basic and diluted
Working capital
Total assets
Total long term liabilities
(1) Working Capital is defined as Current Assets less Current Liabilities.
Year Ended
December 31,
2014
Year Ended
December 31,
2013
Year Ended
December 31,
2012
$
-
$
-
$
-
(8,669,188)
(0.06)
32,603,711
79,690,498
44,269,904
(11,422,025)
(0.08)
46,394,496
97,395,105
50,956,860
(15,196,129)
(0.12)
4,699,256
64,173,530
15,286,041
For the year ended December 31, 2014, net loss was $8,669,188 compared to $11,422,025 in the year ended December 31,
2013. During the year ended December 31, 2014, Entrée incurred lower operating expenditures primarily due to a
combination of lower general and administration expense and higher foreign exchange gains. As at December 31, 2014,
working capital was $32,603,711 compared to $46,394,496 as at December 31, 2013. The decrease in working capital is
primarily the result of cash used in operations during the period. As at December 31, 2014, total assets were $79,690,498
compared to $97,395,105 as at December 31, 2013. The decrease in total assets over the prior year is primarily the net
effect of a decrease in working capital described above. As at December 31, 2014, total long term liabilities were
$44,269,904 compared to $50,956,860 as at December 31, 2013. The decrease in long term liabilities over the prior year is
largely due to a decrease in deferred income tax liabilities and decreased deferred revenue resulting from unrealized
foreign currency translation gains.
86
REVIEW OF OPERATIONS
Results of operations are summarized as follows:
Exploration
General and administrative
Consultancy and advisory fees
Impairment of mineral property interests
Interest expense
Stock-based compensation
Loss from equity investee
Depreciation
Fair value adjustment of asset backed
commercial paper
Gain on sale of mineral property interest
Current income tax expense (recovery)
Interest income
Foreign exchange gain
Deferred income tax recovery
Net loss
Exploration expenditures are summarized as follows:
US
Mongolia
Other
Total costs
Less stock-based compensation
Total expenditures, cash
UNITED STATES
Ann Mason Project, Nevada
Year Ended
December 31,
2014
Year Ended
December 31,
2013
$
9,018,994
3,936,413
830,623
552,095
264,869
251,390
107,907
65,517
$
5,808,316
5,510,641
1,941,130
437,732
260,453
1,422,297
146,051
102,941
-
(28,096)
(123,255)
(295,023)
(1,978,854)
(3,933,392)
(147,564)
(451,892)
319,112
(431,596)
(1,113,728)
(2,381,868)
$
8,669,188
$
11,422,025
Year Ended
December 31,
2014
Year Ended
December 31,
2013
$
$
7,066,997
1,672,341
315,549
9,054,887
(35,893)
9,018,994
3,940,264
1,355,493
807,235
6,102,992
(294,676)
5,808,316
$
$
The Ann Mason Project, located in the Yerington District of Nevada, is one of Entrée’s core advanced assets. With the
completion of a positive PEA in 2012, Entrée began evaluating the most efficient and effective way of advancing the Ann
Mason Project towards prefeasibility. A prefeasibility drill program was undertaken between August 2014 and late
January 2015. Entrée commenced a prefeasibility metallurgy program in the first quarter of 2015 and plans to release an
updated resource estimate for the Ann Mason deposit and an updated PEA in the second quarter of 2015. In addition, the
Company is considering strategic partnerships, joint ventures and similar arrangements that would help facilitate the
development of the project. To date, excluding any capitalized mineral property acquisition costs, Entrée has expended
approximately $27.1 million on the Ann Mason Project.
87
From April to July 2013, Entrée completed 993 metres of RC pre-collar drilling and 2,159 metres of core drilling in five
holes to test the Ann Mason and Blue Hill deposits and other nearby exploration targets. Holes varied in depth from 502 to
811 metres.
At the Ann Mason deposit, core drilling in 2013 was designed to test for extensions of mineralization within the current
pit design, primarily along the northeast and northwest margins of the deposit. Three of the five core holes drilled at Ann
Mason extended copper mineralization 190 metres to 250 metres northwest and northeast of the deposit. Near the east end
of the deposit, hole EG-AM-13-035 intersected 220 metres (from 262 metres depth) averaging 0.30% copper, 0.07 g/t
gold and 1.70 g/t silver. Included within the intersection is a higher-grade interval of 100 metres grading 0.43% copper,
0.11 g/t gold and 2.75 g/t silver. Drill holes EG-AM-13-033 and 034, on the northeast side of the deposit, returned 310
metres of 0.21% copper and 46.0 metres of 0.27% copper, respectively and extend copper mineralization up to 250 metres
northeast of the current mineral resource. Ann Mason mineralization remains open in several directions and further
drilling programs will be needed to test this potential.
Two shallow, widely-spaced RC holes (totaling 180 metres) were completed about 500 to 900 metres to the west of Ann
Mason to test a new, near-surface oxide copper target. Holes EG-AM-13-038 and 039 encountered narrow intervals of
0.16% to 0.20% oxide copper within strong, quartz-sericite-pyrite alteration. Deeper sulphide potential below these holes
remains untested.
2013 drilling at Blue Hill successfully located westward extensions of the current deposit; however, to the east, oxide and
mixed mineralization is truncated by the low angle Blue Hill Fault. Although most recent drill holes mainly tested oxide
mineralization, two diamond holes (EG-BH-11-019 and 021) were drilled east of the oxide copper zone to test deeper
sulphide copper potential. Drilling of the underlying sulphide target remains very widely-spaced, but has identified a
target area more than one kilometre in width, which remains open in most directions. Significant molybdenum
mineralization was also intersected in two of the drill holes targeting the sulphide mineralization.
Hole EG-BH-11-031, located approximately one kilometre east of Blue Hill, intersected a near-surface zone of copper-
oxide mineralization assaying an average of 0.28% copper over 13.8 metres from a depth of 22.2 metres.
Baseline environmental studies commenced in the second quarter of 2013, and included wildlife, biology, archaeology and
cultural surveys and WOUS delineation. These studies were largely complete in early 2014 except for raptor field surveys,
final report writing, and a follow-up WOUS submission to the US Corps of Engineers. An amendment to expand Entrée’s
existing PlanOp and minor modification of its Permit, were accepted by the NDEP and the BLM in early 2014. An
additional bond, in the amount of $31,276, was posted by Entrée in June 2014. Wildlife, vegetation and cultural field
surveys and reports were complete by late 2014 and no significant obstacles to the development of Ann Mason were
identified. The US Corps of Engineers has verbally approved the WOUS report finding of no wetlands subject to US
Corps of Engineers jurisdiction within the Ann Mason Project area but are now waiting for United States Environmental
Protection Agency approval.
On July 16, 2014, the Company announced the commencement of an approximately $5 million prefeasibility drill
program, designed to upgrade the mineral resources contained in the PEA Phase 5 pit from Indicated and Inferred to a mix
of Measured and Indicated categories. The infill drill program was completed in late January 2015 and comprised 40 holes
and a total of approximately 19,265 metres combined RC pre-collars and core.
RC pre-collars were generally restricted to barren, overlying volcanics. Drilling changed to HQ diameter core which was
continually sampled over two metre intervals once mineralized rocks of the Yerington batholith were encountered or hole
conditions dictated the change to core. Depths of holes ranged from 275 metres to 885 metres, depending on position
within the Phase 5 pit, and hole angles varied from -60 to -90 degrees.
Samples were submitted to ACME Labs in Reno and Elko for sample preparation and forwarded by ACME to their
laboratory in Vancouver for analysis. Prepared standards, blanks and duplicates were inserted at the project site to monitor
the quality control of the assay data. Entrée has a chain of custody program to ensure sample security during all stages of
sample collection, cutting, shipping and storage.
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. Highlights include:
EG-AM-14-041, located near the centre of the deposit, with 390 metres of 0.35% copper;
88
EG-AM-14-043, located near the centre of the deposit, with 409 metres of 0.35% copper;
EG-AM-14-046, the eastern-most drill hole, with 112.3 metres of 0.34% copper;
EG-AM-14-050, with 176 metres of 0.35% copper;
EG-AM-14-057, with 327.4 metres of 0.38% copper, including 0.42% copper and 0.12 g/t gold over 200
metres;
EG-AM-14-059, with 466 metres of 0.31% copper;
EG-AM-14-065 with 150 metres of 0.38% copper;
EG-AM-14-067, with 377 metres of 0.32% copper;
EG-AM-14-073, on the northeast rim of the deposit, with 102 metres of 0.36% copper; and
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.
Of the 40 holes, 25 ended in mineralization (copper values greater than the 0.15% copper cut-off). Lower grade holes
tend to be located toward the northern-most border of the Phase 5 pit, in areas where strong mineralization was not
expected. Only one hole, EG-AM-14-049, drilled along the northernmost border of the Phase 5 pit, failed to return any
significant results.
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. These include the
Roulette, Blackjack IP and Blackjack Oxide targets and the Minnesota copper skarn target. In the Blackjack area, IP and
surface copper oxide exploration targets have been identified for drill testing. The Minnesota skarn target requires further
drilling to test deeper IP and magnetic anomalies. The Shamrock and Ann South targets comprise several small-scale
historical mines and skarn-related copper showings in the southeast portion of the project.
For the year ended December 31, 2014, Ann Mason Project expenditures were $6,950,618 compared to $3,807,805 during
the year ended December 31, 2013. The higher expenses in the year ended December 31, 2014 resulted primarily from an
increase in drilling activities.
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 – the Lordsburg property and the Oak Grove property. In September 2013 Entrée
abandoned the Oak Grove property and recorded an impairment of mineral property interests of $437,732.
Pursuant to the Purchase Agreement, Entrée paid $100,000 and issued 500,000 common shares of the Company. The
Lordsburg property is subject to a 2% NSR royalty, which may be bought down to 1% for $1 million if the buydown
option is exercised on or before January 1, 2015. The buydown option may be extended to January 1, 2016 or January 1,
2017, in which case the buydown price will be $2 million and $200,000 will be payable for each 12 month extension. The
buydown price and extension payments are payable in cash or a combination of cash and common shares at Entrée’s
election.
The Lordsburg claims cover 2,013 ha adjacent to the historic Lordsburg copper-gold-silver district in New Mexico.
Drilling at Lordsburg has been successful in discovering a porphyry copper-gold occurrence in an area previously known
only for vein-style gold mineralization. Future drilling will be directed towards expanding the existing drill defined copper
and gold zone. No exploration work was completed in 2013 or 2014.
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.
89
MONGOLIA
Lookout Hill – Joint Venture Property
In mid-December 2012 a drill hole was collared at the north end of Heruga on the Javhlant licence but directed northwest
onto the Oyu Tolgoi licence. 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. No exploration has been completed by OTLLC on the Joint Venture Property
since February 2013 and no work is currently planned for 2015.
Since formation, and as of December 31, 2014, the Entrée-OTLLC Joint Venture had expended $26.9 million to advance
the Joint Venture Property. Under the terms of the Entrée-OTLLC Joint Venture, OTLLC contributed on Entrée’s behalf
the required cash participation amount of $6.4 million, equal to 20% of the $26.9 million incurred to date, plus interest at
prime plus 2%.
Lookout Hill - Shivee West
Entrée has a 100% interest in the western portion of the Shivee Tolgoi mining licence.
No work has been completed on Shivee West in the year ended December 31, 2014. The Company does not anticipate
significant exploration and development on Shivee West until the current regulatory environment in Mongolia has been
stabilized.
For the year ended December 31, 2014, Shivee West expenses were $1,672,341 compared to $1,355,493 during the year
ended December 31, 2013. The higher expenses in 2014 compared to 2013 resulted from higher legal fees and sales taxes,
penalties and interest expenses, partially offset by lower personnel expenses and travel fees.
AUSTRALIA
Blue Rose Joint Venture
Entrée has a 55.32% interest in the Blue Rose copper-iron-gold-molybdenum joint venture property, with Giralia
Resources Pty Ltd, now a subsidiary of Atlas Iron Limited (ASX:AGO) ("Atlas"), retaining a 44.68% interest. The
property is located in the Olary Region of South Australia, 300 kilometres north-northeast of Adelaide. Magnetite iron
formations occur in the southern portion of this 1,000 square kilometre tenement, and a zone of copper oxide
mineralization and a gold target (Golden Sophia) are located in the north-central area of the tenement. The joint venture
covers tenement EL5129, which was granted on July 19, 2012, for a 3-year term.
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 BMG’s future issued capital. On February 27, 2012, the Federal Court of Australia ordered that BMG be wound up;
a liquidator has been appointed. In October 2013, pursuant to an agreement whereby a third party acquired the Blue Rose
joint venture’s iron ore rights from BMG, Entrée received the first of two cash payments of A$475,478 plus GST. The
third party is currently in breach of this agreement as a consequence of failing to make the second required payment.
Soil sampling was completed by the joint venture in August 2011 over the Golden Sophia shallow gold target. The survey
confirmed the previous Battle Mountain gold in soil anomaly and defined a new, linear gold anomaly located
approximately 700 metres to the northeast.
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 license. Native title agreements have been signed with the
Wilyakali and Ngadjuri groups.
During the year ended December 31, 2014, the Company recorded an impairment of mineral property interests of
$552,095.
90
PERU
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 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, 2014, Lukkacha expenses were $78,925 compared to $134,454 during the year ended
December 31, 2013.
GENERAL AND ADMINISTRATIVE
For the year ended December 31, 2014, general and administrative expense, excluding foreign exchange gains and losses
and before stock-based compensation, was $3,936,413 compared to $5,510,641 during the year ended December 31, 2013
and compared to $4,295,800 during the year ended December 31, 2012. The decrease in 2014 was due primarily to
decreases in personnel expenses, legal fees and travel expenses compared to 2013.
STOCK-BASED COMPENSATION
For the year ended December 31, 2014, stock-based compensation expense was $251,390 compared to $1,422,297 during
the year ended December 31, 2013 and compared to $1,207,878 during the year ended December 31, 2012. During the
year ended December 31, 2014, 2,815,000 options were granted with a fair value of $251,390, compared to 7,560,000
options that were granted with a fair value of $1,421,371 during the year ended December 31, 2013, and compared to
1,882,000 options that were granted with a fair value of $1,124,930 during the year ended December 31, 2012.
INTEREST INCOME AND EXPENSE
For the year ended December 31, 2014, interest expense was $264,869 compared to $260,453 during the year ended
December 31, 2013 (December 31, 2012 - $229,359). Interest expense is due to accrued interest on the OTLLC loan
payable. For the year ended December 31, 2014, interest income was $295,023 compared to $431,596 for the year ended
December 31, 2013 (December 31, 2012 - $190,449). The Company earns interest income on its invested cash.
VALUATION OF LONG-TERM INVESTMENT
Equity Method Investment
Entrée accounts for its interest in a joint venture with OTLLC as a 20% equity investment. As at December 31, 2014, the
Company’s investment in the Entrée-OTLLC Joint Venture was $93,914 (December 31, 2013 - $96,367). The Company’s
share of the loss of the Entrée-OTLLC Joint Venture was $107,907 for the year ended December 31, 2014 (December 31,
2013 - $146,051; December 31, 2012 - $1,012,156) plus accrued interest expense of $264,869 for the year ended
December 31, 2014 (December 31, 2013 - $260,453; December 31, 2012 - $229,359). The decrease in the loss from
equity investee for the year ended December 31, 2014 compared to last year was due to decreased exploration expenses
incurred by the Entrée-OTLLC Joint Venture in the period.
91
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 targets. These efforts have resulted in the consolidation of the Ann Mason Project in Nevada and the
acquisition of the Lordsburg property in New Mexico. The commodities Entrée is most likely to pursue include copper,
gold and molybdenum, which are often associated with large tonnage, porphyry related environments. Smaller, higher
grade systems will be considered by Entrée if they demonstrate potential for near-term production and cash-flow.
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 Joint Venture Property in Mongolia is brought into production or it
builds and operates a mine on one or more of its other mineral properties. As at December 31, 2014, Entrée had working
capital of approximately $32.6 million. Entrée’s average monthly operating expenses for the year ended December 31,
2014, were approximately $1,054,000, including exploration, general and administrative expenses and investor relations
expenses.
92
SELECTED QUARTERLY DATA
Exploration
General and administrative
Consultancy and advisory fees
Impairment of mineral property interests
Depreciation
Gain on sale of mineral property interest
Foreign exchange loss (gain)
Loss from operations
Interest income
Interest expense
Loss from equity investee
Current income tax recovery (expense)
Deferred income tax recovery (expense)
Net loss
Three Months
Ended
December 31,
2014
Three Months
Ended
September 30,
2014
Three Months
Ended
June 30,
Three Months
Ended
March 31,
2014
2014
$
$
$
$
4,465,219
1,183,067
133,687
-
14,405
-
(662,619)
(5,133,759)
35,559
(67,749)
(28,974)
(10,124)
2,141,233
(3,063,814)
2,268,197
844,646
177,194
552,095
16,277
-
(1,126,822)
(2,731,587)
79,174
(66,735)
(29,369)
-
1,348,919
(1,399,598)
757,325
980,107
234,070
-
17,160
(28,096)
882,044
(2,842,610)
97,064
(65,524)
(28,772)
246,609
(332,558)
(2,925,791)
1,564,146
1,144,090
285,672
-
17,675
-
(1,071,457)
(1,940,126)
83,226
(64,861)
(20,792)
(113,230)
775,798
(1,279,985)
$
$
$
$
Loss per share, basic and diluted
$
(0.02)
$
(0.01)
$
(0.02)
$
(0.01)
Exploration
General and administrative
Consultancy and advisory fees
Impairment of mineral property interests
Depreciation
Gain on sale of mineral property interest
Foreign exchange loss (gain)
Loss from operations
Interest income
Interest expense
Gain (loss) from equity investee
Fair value adjustment of asset backed
commercial papers
Current income tax expense
Deferred income tax recovery
Net loss
Three Months
Ended
December 31,
2013
Three Months
Ended
September 30,
2013
Three Months
Ended
June 30,
Three Months
Ended
March 31,
2013
2013
$
1,426,239
1,626,040
309,462
-
22,570
(451,892)
(765,656)
(2,166,763)
126,664
(66,331)
(29,756)
$
1,168,327
1,047,875
320,567
-
24,831
-
662,337
(3,223,937)
140,418
(65,313)
(23,049)
$
1,904,636
1,190,851
324,175
437,732
26,704
-
(892,725)
(2,991,373)
100,948
(64,553)
19,683
$
1,603,790
2,773,496
986,926
-
28,836
-
(117,684)
(5,275,364)
63,566
(64,256)
(112,929)
-
(319,112)
1,331,336
(1,123,962)
-
-
241,279
(2,930,602)
147,564
-
512,114
(2,275,617)
$
-
-
297,139
(5,091,844)
$
$
$
Loss per share, basic and diluted
$
(0.01)
$
(0.02)
$
(0.02)
$
(0.04)
Exploration costs were higher in the year ended December 31, 2014 compared to the year ended December 31, 2013,
primarily due to an increase in drilling activity on the Ann Mason Project and higher sales taxes, partially offset by lower
personnel and stock-based compensation expenses during the year ended December 31, 2014. General and administrative
costs, excluding stock-based compensation changes, were approximately 29% lower in the year ended December 31, 2014
compared to the year ended December 31, 2013. This decrease is primarily attributable to decreased personnel expenses
and legal fees. During the three months ended September 30, 2014, the Company recorded an impairment of mineral
property interests of $552,095 on the Blue Rose joint venture property. During the three months ended June 30, 2014,
93
Entrée sold its interest in the Mystique property for proceeds of $28,096, net of taxes. During the three months ended
December 31, 2013, Entrée received a cash payment of $451,892 pertaining to an agreement whereby a third party
acquired the Blue Rose joint venture iron ore rights. During the three months ended March 31, 2013, the Company
incurred consultancy and advisory fees of $936,926 related to the Sandstorm financing package. Loss from equity investee
was lower in the year ended December 31, 2014 compared to the year ended December 31, 2013 due to decreased
expenditures on the Joint Venture Property. During the year ended December 31, 2014, Entrée recorded deferred income
tax recovery of $3,933,392 compared to deferred income tax recovery of $2,381,868 during the year ended December 31,
2013.
B.
Liquidity and Capital Resources
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, 2014 was $32,603,711. Cash was $33,517,096 at December 31, 2014. On February 15, 2013, the Company closed the
approximately $55 million financing package with Sandstorm which will be used to advance the Ann Mason Project,
support operations in Mongolia and for general working capital requirements. In the event of a partial expropriation of
Entrée’s economic interest, contractually or otherwise, in the Joint Venture Property, which is not reversed during the
abeyance period provided for in the Funding Agreement, the Company will be required to return a pro rata portion of the
Deposit (the amount of the repayment not to exceed the amount of the Unearned Balance).
Under the terms of the Entrée-OTLLC Joint Venture, Entrée elected to have OTLLC debt finance Entrée’s share of costs
on the Joint Venture Property, with interest accruing at OTLLC’s actual cost of capital or prime plus 2%, whichever is
less, at the date of the advance. As at December 31, 2014, the total amount that OTLLC has contributed to costs on the
Company’s behalf, including interest, is $6.4 million.
Operating activities
Cash used in operations was $12,617,637 for the year ended December 31, 2014 compared to the cash provided by
operations of $27,979,150 for the year ended December 31, 2013. This decrease is primarily due to cash proceeds of $40
million received from the Funding Agreement with Sandstorm during the year ended December 31, 2013.
Financing activities
Cash provided by financing activities during the year ended December 31, 2014 and 2013 and common shares issued for
cash were as follows:
Private placement
Share issuance costs
Year Ended
December 31,
Year Ended
December 31,
2014
2013
Shares
Amount
Shares
Amount
-
-
-
$
$
-
-
-
17,857,142
-
17,857,142
$
$
9,722,897
(86,636)
9,636,261
The 2013 private placement was part of the Sandstorm financing package.
Investing activities
During the year ended December 31, 2014, Entrée made payments of $100,000 related to mineral property acquisitions
(December 31, 2013 – $50,000). During the year ended December 31, 2014, Entrée received cash proceeds of $83,428 on
the release of reclamation deposits (December 31, 2013 – $115,180) and made payments of $66,179 related to reclamation
deposits (December 31, 2013 – $Nil). During the year ended December 31, 2014, Entrée expended $13,074 on equipment,
primarily for exploration activities (December 31, 2013 – $7,623). During the year ended December 31, 2014, Entrée sold
its interest in the Mystique property for proceeds of $28,096, net of taxes. During the year ended December 31, 2013,
Entrée received cash proceeds of $5 million from Sandstorm in return for a 0.4% NSR royalty on the Ann Mason and Blue
Hill deposits.
94
Outstanding share data
As at December 31, 2014 and March 30, 2015, there were 146,984,385 common shares outstanding. In addition, as at
December 31, 2014, there were 13,779,000 stock options outstanding with exercise prices ranging from C$0.21 to C$3.47
per share. As at March 30, 2015, there were 13,699,000 stock options outstanding with exercise prices ranging from
C$0.21 to C$3.47 per share. There were no warrants outstanding at December 31, 2014 or at March 30, 2015.
Capital Resources
Entrée had no commitments for capital assets at December 31, 2014.
At December 31, 2014, Entrée had working capital of $32,603,711 compared to $46,394,496 as at December 31, 2013.
C.
Research and Development, Patents and Licenses, etc.
None.
D.
Trend Information
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 over the past several years. These prices have declined
significantly since these recent 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
Company’s exploration programs.
The Company’s financial assets and liabilities generally consist of cash and cash equivalents, receivables, deposits,
accounts payable and accrued liabilities and loans payable, some of which are denominated in foreign currencies including
United States dollars, Mongolian Tugriks and Australian dollars. The Company is at risk to financial gain or loss as a
result of foreign exchange movements against the Canadian dollar. The Company does not currently have major
commitments to acquire assets in foreign currencies, but historically it has incurred the majority of its exploration costs in
foreign currencies.
E.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements except for the contractual obligation noted below.
F.
Tabular Disclosure of Contractual Obligations
The following table lists, as at December 31, 2014, the Company’s contractual obligations. Entrée is committed to make
lease payments totalling $563,021 over its three year office lease in Vancouver, Canada and two office, three warehouse
and four accommodation leases in the United States.
Office lease
Total
Less than 1
year
$283,325
$283,325
1-3 Years
3-5 years
$279,696
$279,696
$Nil
$Nil
More than 5
years
$Nil
$Nil
Total
$563,021
$563,021
G.
Safe Harbor
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.
95
Item 6. Directors, Senior Management and Employees
A.
Directors and Senior Management
The following is a list of the Company’s directors and executive officers as at December 31, 2014. The directors were
elected by the Company’s shareholders on June 26, 2014 and are elected for a term of one year, which term expires at the
election of the directors at the next annual meeting of shareholders.
The Board adopted a majority voting policy in May 2013. If the number of shares "withheld" from voting for the election
of a nominee is greater than the number of shares voted "for" his or her election, the director must submit his or her
resignation to the Chairman of the Board promptly after the shareholders’ meeting. The Corporate Governance and
Nominating Committee of the Board (the "CGNC") will consider the resignation and will recommend to the Board
whether or not to accept it. After considering the recommendations of the CGNC, the Board will make its decision as to
whether to accept or reject the resignation in question and the Company will announce the Board’s decision, including any
reasons for the Board not accepting a resignation, within 90 days following the shareholders’ meeting. The policy does
not apply if there is a contested director election or where the election involves a proxy battle.
The Company’s Board consisted of seven directors as at December 31, 2014. The following is a brief account of the
education and business experience of each director and executive officer, indicating each person’s principal occupation
during the last five years.
Gregory Crowe, President, Chief Executive Officer and Director
Mr. Crowe has been a director and President of the Company since July 3, 2002 and has been Chief Executive Officer of
the Company since July 16, 2003.
Mr. Crowe was self-employed from 1997 to 2002, providing exploration and management services for junior resource
companies.
Mr. Crowe is a professional geologist with more than 30 years of exploration, business and entrepreneurial experience
throughout North America, Latin America, Africa and Southeast Asia. Prior to joining the Company, Mr. Crowe was a
senior executive with Acrex Ventures Ltd., a junior resource company active in Ontario, and co-founder and President of
Azimuth Geological Inc., a private consulting company specializing in exploration and management services for junior
and major mining companies such as Rio Algom Ltd., the Prime Group and Westmin Resources Limited. Mr. Crowe also
worked for Yuma Copper Corp. from 1994 to 1997, where he was instrumental in transforming Yuma Copper Corp. from
a junior exploration company into a copper producer with two mines in Chile.
Mr. Crowe obtained a Bachelor of Geology degree from Carlton University and a Master of Geology degree from the
University of Calgary. He is a member of the Association of Professional Engineers and Geoscientists of British
Columbia, and the Prospectors and Developers Association of Canada.
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 Company’s non-executive Deputy Chairman between May 16, 2007 and June 27, 2013
and was appointed non-executive Chairman on June 27, 2013.
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 Queen’s Birthday Honours List, 2011.
James Harris, Director
Mr. Harris has been a director of the Company since January 29, 2003, served as the Company’s non-executive Chairman
between March 15, 2006 and June 27, 2013 and served as the Company’s non-executive Deputy Chairman between June
27, 2013 and February 28, 2015.
96
Mr. Harris was formerly a corporate, securities and business lawyer with over 30 years’ experience in British Columbia
and internationally. He has extensive experience with the acquisition and disposition of assets, corporate structuring and
restructuring, regulatory requirements and corporate filings, and corporate governance. Mr. Harris was also a Founding
Member of the Legal Advisory Committee of the former Vancouver Stock Exchange. Mr. Harris has completed the
Directors’ Education Program of the Institute of Corporate Directors and is an Institute accredited Director. Mr. Harris
has also completed a graduate course in business at the London School of Economics.
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 more than 35 years of industry experience.
Between 1995 and 2012, he was the President and Chief Executive Officer of Minefinders Corporation Ltd.
("Minefinders"), a precious metals mining company that operated the multi-million ounce Dolores gold and silver mine in
Mexico before being acquired by Pan American Silver Corp. Before joining Minefinders, Mr. Bailey held senior positions
with Equinox Resources Inc. and Exxon Minerals. Since 1984, Mr. Bailey has worked as a consulting geologist with
Mark H. Bailey & Associates LLC.
Lindsay Bottomer, Director
Mr. Bottomer has been a director of the Company since June 28, 2002. He served as an executive officer of the Company
between October 16, 2005 and December 31, 2013, most recently as Vice President, Business Development.
Mr. Bottomer is a professional geologist with over 40 years’ experience in global mineral exploration and development
with major and junior mining companies, the last 25 years based in Vancouver, BC. He was President and Chief
Executive Officer of Silver Quest Resources Ltd. from 2001 to 2005, and a founding director of Richfield Ventures Corp.
until its takeover by New Gold Inc. in June 2011 for approximately $480 million. Mr. Bottomer has also served as
Director of Canadian Exploration with Echo Bay Mines Ltd., and Vice-President of New Projects with Prime Equities
International.
Mr. Bottomer obtained a Bachelor of Science (Honours) degree in geology from the University of Queensland and a
Master of Applied Science degree from McGill University. Mr. Bottomer is a member of the Association of Professional
Engineers and Geoscientists of British Columbia and a Fellow of the Australasian Institute of Mining and Metallurgy. He
is also Past President of the British Columbia and Yukon Chamber of Mines and served for six years from 2002 to 2008 as
an elected councillor on the Association of Professional Engineers and Geoscientists of British Columbia.
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
AuRico Gold Inc. and AQM Copper Inc., and is a director of Scorpio Mining Corporation. He served as the Chief
Executive Officer of Oracle Mining Corporation, a Vancouver based company, from 2012 to 2013. He served as President
and Chief Executive Officer of Copper One Inc. from 2009 to 2011, as President and Chief Executive Officer of Frontera
Copper Corporation from 2007 to 2009, and as Executive Vice President and Chief Operating Officer of Apex Silver
Mines Corporation from 2004 to 2007, where he directed the engineering, construction and development of the San
Cristobal project in Bolivia. Mr. Edwards has also worked for Kinross Gold Corporation, P.T. Freeport Indonesia, Cyprus
Amax Minerals Company and Phelps Dodge Mining Company, where he started his career.
Gorden Glenn, Director
Mr. Glenn has been a director of the Company since June 18, 2012.
Mr. Glenn has over 20 years of mining, exploration and investment banking experience. He has been the Chief Executive
Officer and President of Minnova Corp. since July 2012 and also serves as Minnova’s Chairman. Between December
2011 and April 2012 he served as Chief Executive Officer and a director of AMR Mineral Metal Inc. Between August
2010 and December 2011, Mr. Glenn was the Managing Director of Mining Investment Banking for Desjardins Securities.
97
Prior to that, Mr. Glenn was the Vice President & Director of Mining Investment Banking at TD Securities. Holding a
BScH in Geological Sciences from Queen’s University in Kingston, Ontario, he started his career as a project geologist
with Inmet Mining and Kennecott Canada Inc. before switching to the capital markets where he worked as a mining
analyst prior to joining TD Securities in 2005.
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.
Mona Forster, Executive Vice President
Ms. Forster joined the Company as Business Manager in October 2003 and was appointed to the position of Executive
Vice President in November 2010.
Ms. Forster has over 25 years of experience in administration and management, primarily in the mining industry. She has
worked at a remote fly-in fly-out operating gold mine and within exploration and environmental consulting firms. She
was an elected director of the Association for Mineral Exploration British Columbia (AME BC) for seven years, including
a term as Chair of the Board of Directors. Ms. Forster remains active on several committees related to AME BC. She was
a founding member of the BC HR Taskforce: Exploration, Mining, Stone, Sand & Gravel, a government-industry task
force struck in 2007 to address the need for skilled and qualified workers within the mining industry in BC. She is
currently Vice-Chair of the Centre of Training Excellence in Mining and an avid supporter of Resource Works. Ms.
Forster holds an MBA from Simon Fraser University and is a member of AME BC, Prospectors and Developers
Association of Canada, Canadian Investor Relations Institute and Canadian Society of Corporate Secretaries.
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.
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 Company’s Vice President, Corporate Development since January 1, 2014. Prior to that, he was
the Company’s Vice President, Technical Services from June 27, 2013 to December 31, 2013, and the Company’s
Director of Technical Services from July, 2011 to June 26, 2013.
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.
98
Robert Cann, Vice President, Exploration
Mr. Cann was appointed to the position of Vice President, Exploration on August 11, 2005.
Since joining Entrée in 2002, Mr. Cann has been in charge of the start-up and management of all of the Company’s
support operations and exploration projects. Mr. Cann has more than 30 years of international exploration experience
including extensive experience in international project management and development, geological consulting and office
management. Prior to joining the Company, Mr. Cann was Exploration Manager for Spokane/Sand River Resources in
Chihuahua, Mexico, from 1999 to 2000. From 1995 through 1999, Mr. Cann worked as an independent consulting
geologist for various companies contemplating property acquisitions in Honduras, Mexico, Peru, Bolivia and Nevada. Mr.
Cann holds a Master of Science degree in Economic Geology from the University of British Columbia and is a member of
the Association of Professional Engineers and Geoscientists of British Columbia, the Canadian Institute of Mining and
Metallurgy (CIMM) 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 Company’s officers or directors was selected as an officer or director of the Company.
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 Company’s directors, officers and promoters serve
as directors, officers and promoters of other companies, and, therefore, it is possible that a conflict may arise between their
duties as a director, officer or promoter of the Company and their duties as a director or officer of such other companies.
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 directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any
of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the
BCBCA, and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations
imposed upon them by law.
The majority of the Company’s directors are also directors, officers or shareholders of other companies that are engaged in
the business of acquiring, developing and exploiting natural resource properties including properties in countries where
the Company is conducting its operations. Such associations may give rise to conflicts of interest from time to time. Such
a conflict poses the risk that the Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed. The directors of the Company are required by law to act honestly and in good faith
with a view to the best interest of the Company and to disclose any interest which they may have in any project or
opportunity of the Company. However, each director has a similar obligation to other companies for which such director
serves as an officer or director. The Company has no specific internal policy governing conflicts of interest.
B.
Compensation
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.
Set out below are particulars of compensation paid to the following persons (the "Named Executive Officers" or "NEOs"):
1. a chief executive officer ("CEO");
2. a chief financial officer ("CFO");
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3. each of the three most highly compensated executive officers, or the three most highly compensated individuals
acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year
whose total compensation was, individually, more than C$150,000 for that financial year; and
4. any individual who would be a NEO under paragraph (3) but for the fact that the individual was neither an executive
officer of the Company, nor acting in a similar capacity, at the end of that financial year.
As at December 31, 2014, the end of the most recently completed financial year of the Company, the Company had five
NEOs.
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
Company’s compensation strategy are to (a) compensate management in a manner that encourages and rewards a high
level of performance and outstanding results with a view to increasing long-term shareholder value; (b) align
management’s interests with the long-term interests of shareholders; (c) provide a compensation package that is
commensurate with other comparable mineral exploration companies to enable the Company to attract and retain talent;
and (d) ensure that the total compensation package is designed in a manner that takes into account the constraints that the
Company is under by virtue of the fact that it is a junior mineral exploration company without a history of earnings,
current market and industry circumstances and the Company’s ability to raise capital.
In the course of its annual management compensation evaluation, the Compensation Committee considers, among such
other factors as it may deem relevant, management’s recommendations with respect to compensation, the extent to which
corporate goals have been achieved, the Company’s overall performance, shareholder returns, the value of similar
incentive awards to executive officers at comparable companies and the awards given to management in prior years.
General corporate goals for 2014 set by management and approved by the Board included resolving outstanding issues
related to the Company’s project in Mongolia; increasing corporate development activities through evaluation of merger
and acquisition opportunities as well as potential strategic investors for the Ann Mason Project; negotiating strategic
acquisitions of additional ground in order to consolidate the Company’s Ann Mason Project in Nevada; and undertaking
corporate restructuring in an effort to simplify and reduce costs of maintaining company infrastructure. Specific corporate
targets were not defined.
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 Company’s
compensation strategy.
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 NEO’s base salary for the upcoming year after taking
multiple factors into account, including the overall performance of the Company, general market performance and
economic outlook, the performance of the NEO, the NEO’s experience level and particular responsibilities and a review of
base salaries paid to executive officers of comparable companies.
The granting of incentive stock options provides a link between management compensation and the Company’s share
price. It also rewards management for achieving results that improve Company performance and thereby increase
shareholder value. Stock options are generally awarded to executive officers at the commencement of employment 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 NEO; the potential dilution to shareholders and the cost to the Company; previous grants made
to the NEO; option grants made to executive officers of comparable companies; and the limits imposed by the terms of the
Company’s Stock Option Plan (the "Plan") and the TSX. The Company considers the granting of incentive stock options
to be a particularly important element of compensation as it allows the Company to encourage and reward each NEO’s
100
efforts to increase value for shareholders without requiring the Company to use cash from its treasury. The terms and
conditions of the Company’s stock option grants, including vesting provisions and exercise prices, are determined by the
Board at the time of grant, subject to the limits imposed by the terms of the Plan.
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 Company’s interests, the community and the industry may also be rewarded
through a cash bonus.
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 and market decline have been ongoing, with few signs of recovery, and junior
exploration companies continue to have difficulty raising capital on favorable terms. The Company’s share price has
continued to decline, potentially primarily the result of political uncertainty in Mongolia, continued concerns with
economic stability in the Eurozone, and economic uncertainty in China. Accordingly, in order to preserve capital, NEO
salaries have generally been held to 2011 levels and discretionary bonuses have not been awarded, despite the fact that
certain corporate objectives have been achieved, and many peer companies have increased salaries for, and awarded
bonuses to, executive officers.
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, including: raising approximately $55 million through the Sandstorm
transaction, which provided the Company with strategic flexibility for existing and future business operations; the
preparation of a PEA for the Ann Mason deposit, which demonstrates the viability of the deposit for advancement to pre-
feasibility; preparing the first resource estimate for the Blue Hill deposit; acquiring additional key ground in order to
consolidate the Company’s Ann Mason Project in Nevada; outlining a new gold target on the Company’s Shivee West
property in Mongolia; and raising approximately C$16 million through a marketed short form prospectus offering in late
2011. The Compensation Committee evaluated the performance of the NEOs taking into account all of the factors
described above. At the conclusion of its management compensation evaluation, the Compensation Committee
recommended that discretionary bonuses be awarded to the NEOs (which recommendation was approved by the Board).
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 Company’s senior management team and independent directors and to recommend required changes (if any) to pay
elements and strategy to align the Company with current market practices. LaneCaputo benchmarked the compensation
arrangements of the Company’s executives and directors against a peer group of mining companies with similar
operations. The criteria that were used by LaneCaputo to develop the peer group included relevant peer companies at
similar stages of development, operating in the same regional geography, and companies from approximately half of the
Company’s market capitalization to roughly double the Company’s market capitalization. Access to capital tends to
determine the pay mix to a certain extent, therefore matching the development stages of peer companies is important. The
magnitude of executive compensation is also correlated to the size of an organization the executives oversee, therefore
organizations with significant enough resources to warrant a prefeasibility study were included. In addition, geographical
similarity allows for a more accurate benchmarking of comparable skillsets used to manage domestic versus international
operations. The Company has operations in both arenas therefore companies with similar challenges were also included.
The following companies were in the peer group developed by LaneCaputo:
Almaden Minerals Ltd.
Asanko Gold Inc.
Midas Gold Corp.
NovaCopper Inc.
101
Augusta Resource Corp.
Chesapeake Gold Corp.
Copper Fox Metals Inc.
Eco Oro Minerals Corp.
Exeter Resource Corp.
Lumina Copper Corp.
MAG Silver Corp.
Oracle Mining Corp.
Paramount Gold & Silver Corp.
Pilot Gold Inc.
Quaterra Resources Inc.
Redhawk Resources Inc.
Sabina Gold & Silver Corp.
Wildcat Silver Corp.
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 Committee’s recommendation to
establish a pool of C$500,000, which can be increased at the Board’s discretion in the event of exceptional work by
management. The pool does not represent a guaranteed bonus for management. The extent to which management has
achieved goals for the year will be evaluated by the Compensation Committee and the Board, and the actual amount that
will be paid out, if any, will be recommended by the Compensation Committee and approved by the Board in its discretion
based upon that evaluation.
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.
Management’s compensation proposal took note of the continuing halt to development at the Oyu Tolgoi underground
mine in Mongolia, the continuing need to preserve capital and thus limit development of Ann Mason, and the Company’s
ongoing efforts to identify a beneficial merger and acquisition opportunity. Management’s compensation proposal also
took note of the complexity of the issues that management is dealing with, the key milestones and corporate objectives
that had been met during 2014, and the fact that NEO salaries have been kept to 2011 levels while some peer companies
continue to provide salary increases to their executive officers.
The Compensation Committee evaluated the performance of the NEOs, taking into account the factors described above.
The Compensation Committee accepted management’s proposal, and recommended to the Board that the NEOs receive
salary increases in the order of 3% effective January 1, 2015, but that no discretionary bonuses be awarded from the bonus
pool. At the Board meeting held to consider, and ultimately approve, the Compensation Committee’s recommendations,
Mr. Crowe voluntarily declined his salary increase.
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 2014 with respect to any NEO.
In the course of conducting its annual review of compensation, the Compensation Committee considers the implications
and risks associated with the Company’s executive compensation policies, philosophy and practices. As discussed above,
the Compensation Committee follows an overall compensation model which ensures that an adequate portion of overall
compensation for the NEOs is "at risk" and only realized through the performance of the Company over both the short-
term and long-term. The Compensation Committee reviews the model to ensure that there are sufficient features to
mitigate the incentive for excessive risk taking. Some of the key risk mitigating features include:
balanced design, between fixed and variable pay and between short-term and long-term incentives;
consistent program design among all executive officers and within the Company as a whole; and
a greater reward opportunity derived from long-term incentives compared to short-term incentives, creating
a greater focus on sustained performance over time.
The Compensation Committee also had regard to the fact that the CEO retains significant personal shareholdings in the
Company and therefore has a direct personal interest in the maximization of shareholder value.
The Company does not permit its executive officers or directors to hedge any of the equity compensation granted to them.
102
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 Company’s
compensation practices and policies. For a description of each committee member’s experience, see "Item 6. Directors,
Senior Management and Employees A. Directors and Senior Management" above.
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 Committee’s voting or deliberations.
Responsibilities of the Compensation Committee include:
Reviewing and approving on an annual basis corporate goals and objectives relevant to CEO compensation,
evaluating the CEO’s performance in light of those goals and objectives and setting the CEO’s
compensation level based on this evaluation. In determining the long-term incentive component of CEO
compensation, the Compensation Committee will consider, among such other factors as it may deem
relevant, the Company’s performance, shareholder returns, the value of similar incentive awards to chief
executive officers at comparable companies and the awards given to the CEO in past years;
Reviewing and approving on an annual basis the adequacy and form of compensation and benefits of all
other executive officers and directors, and making recommendations to the Board in that regard;
Making recommendations to the Board with respect to the Plan and any other incentive compensation plans
and equity-based plans;
Determining the recipients of, and the nature and size of share compensation awards and bonuses granted
from time to time, in compliance with applicable securities law, stock exchanges and other regulatory
requirements; and
Approving inducement grants, which include grants of options or stock to new employees in connection
with a merger or acquisition, as well as any tax-qualified, non-discriminatory employee benefit plans or
non-parallel non-qualified plans, to new employees.
The Compensation Committee is acutely aware of the dual responsibility that non-executive directors have for overseeing
the Company’s corporate governance and long-term sustainability, as well as its compensation plans. In the course of
determining compensation for non-executive directors, the Compensation Committee tries to ensure that non-executive
director interests are closely aligned with those of shareholders, and that best practices for corporate governance are
observed in the course of structuring non-executive director pay. In particular, the Compensation Committee is committed
to structuring director pay in a manner that enables directors to maintain their independence. One of the ways that the
Compensation Committee attempts to achieve this is by imposing reasonable limits on independent director participation
in the Plan.
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 Company’s senior
management team and independent directors and to recommend required changes (if any) to pay elements and strategy to
align the Company with current market practices. The following table shows the aggregate fees billed to the Company by
LaneCaputo in the Company’s two most recently completed financial years.
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Executive Compensation-Related Fees(1)
All other fees(2)
Total:
2014 (C$)
$Nil
$Nil
2013 (C$)
$32,000
$0
$32,000
(1)
(2)
Aggregate fees billed by LaneCaputo for services related to determining compensation for the Company's directors and executive officers.
Aggregate fees billed by LaneCaputo for all other services.
No other compensation consultant or advisor has been retained by the Company in either of the Company’s two most
recently completed financial years.
Summary Compensation Table
The following table is a summary of compensation paid or granted to the NEOs for the last three financial years ending
December 31, 2014, 2013 and 2012.
Name and
Principal
Position
Year
Salary
(US$)(5)
Share-
based
awards
(US$)
Option-
based
awards (1)
(US$)(5)
Non-equity incentive
plan compensation
(US$)(2) (5)
Pension
value
(US$)(2)
All other
compensation
(US$)(4) (5)
Total
compensation
(US$)(5)
Annual
incentive
plans
Long-term
incentive
plans
Gregory Crowe,
President and
CEO(3)
2014
$280,148
Nil
$27,986
Nil
Nil
2013
$305,566
Nil
$154,763
$141,030
Nil
2012
$326,666
2014
$211,189
Nil
Nil
$103,729
$23,321
Nil
Nil
Nil
Nil
Bruce Colwill,
CFO
2013
$230,350
Nil
$114,094
$112,824
Nil
2012
$246,256
Nil
$86,441
Nil
Nil
Mona Forster,
Executive Vice
President
Robert Cann,
Vice President,
Exploration
Susan McLeod,
Vice President,
Legal Affairs &
Corporate
Secretary
2014
$210,111
Nil
$20,989
Nil
Nil
2013
$229,175
Nil
$100,538
$112,824
Nil
2012
$245,000
Nil
$86,441
Nil
Nil
2014
$210,111
Nil
$20,989
Nil
Nil
2013
$229,175
Nil
$95,095
$94,020
Nil
2012
$245,000
Nil
$86,441
Nil
Nil
2014
$211,189
Nil
$20,989
Nil
Nil
2013
$230,350
Nil
$105,980
$112,824
Nil
2012
$246,256
Nil
$86,441
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
$308,134
$22,330
$623,689
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
$430,395
$234,510
$457,268
$332,697
$231,100
$442,537
$331,441
$231,100
$418,290
$331,441
$232,178
$449,154
$332,697
(1)
The Company uses the Black-Scholes option-pricing model for determining fair value of stock options issued at the grant date. The Company
selected the Black-Scholes option-pricing model because it is widely used in estimating option based compensation values by Canadian and
U.S. public companies. The practice of the Company is to grant all option based awards in Canadian currency, and then convert the grant date
fair value amount to United States currency for reporting the value of the grants in the Company’s financials. The conversion rate for each grant
is the average of the rates quoted by the Bank of Canada as its noon spot rate of the last day of the three months in the quarter in which the grant
is made. The conversion rates for the purpose of the grants in this table are presented below and are based on the applicable conversion rate on
the date of grant, each as supplied by the Bank of Canada.
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(2)
(3)
(4)
(5)
The Company does not have a formal annual incentive program, however, bonuses are granted as determined by the Compensation Committee
and approved by the Board on an individual basis. The Company does not presently have a pension incentive plan for any of its executive
officers, including its NEOs.
Mr. Crowe is also a director of the Company. Mr. Crowe does not receive compensation from the Company for acting as a director, and no
portion of the total compensation disclosed above was received by Mr. Crowe as compensation for acting as a director.
Other Compensation includes amounts paid out for vacation time earned, but not taken.
All compensation is negotiated and settled in Canadian dollars. The exchange rate used to convert 2014 compensation to US$ is 1.1601 (2013 –
1.0636; 2012 – 0.9949).
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.
Name
Date of Grant
Expiry Date
Exercise Price (C$)
Options Granted
Exchange Rates to US$
Gregory G. Crowe
Bruce Colwill
Mona Forster
Robert Cann
Susan McLeod
23-Dec-14
19-Dec-13
15-Mar-13
06-Jan-12
23-Dec-14
19-Dec-13
15-Mar-13
06-Jan-12
23-Dec-14
19-Dec-13
15-Mar-13
06-Jan-12
23-Dec-14
19-Dec-13
15-Mar-13
06-Jan-12
23-Dec-14
19-Dec-13
15-Mar-13
06-Jan-12
22-Dec-19
19-Dec-18
15-Mar-18
06-Jan-17
22-Dec-19
19-Dec-18
15-Mar-18
06-Jan-17
22-Dec-19
19-Dec-18
15-Mar-18
06-Jan-17
22-Dec-19
19-Dec-18
15-Mar-18
06-Jan-17
22-Dec-19
19-Dec-18
15-Mar-18
06-Jan-17
$0.21
$0.30
$0.56
$1.25
$0.21
$0.30
$0.56
$1.25
$0.21
$0.30
$0.56
$1.25
$0.21
$0.30
$0.56
$1.25
$0.21
$0.30
$0.56
$1.25
300,000
350,000
450,000
150,000
250,000
200,000
375,000
125,000
225,000
150,000
350,000
125,000
225,000
150,000
325,000
125,000
225,000
150,000
375,000
125,000
C$1.16/US$1
C$1.07/US$1
C$1.02/US$1
C$0.99/US$1
C$1.16/US$1
C$1.07/US$1
C$1.02/US$1
C$0.99/US$1
C$1.16/US$1
C$1.07/US$1
C$1.02/US$1
C$0.99/US$1
C$1.16/US$1
C$1.07/US$1
C$1.02/US$1
C$0.99/US$1
C$1.16/US$1
C$1.07/US$1
C$1.02/US$1
C$0.99/US$1
The Company employs Mr. Gregory Crowe as President and CEO under an employment agreement dated
November 1, 2003, as amended. The agreement was for an initial term of two years, and is subject to automatic renewal
for additional one year periods, unless notice is provided by the Company six months in advance of the end of the term.
Mr. Crowe is required to provide the Company with one month’s prior written notice in the event he wishes to resign. The
Company may terminate Mr. Crowe’s employment at any time without cause by providing him with a lump sum payment
equal to 24 months’ salary and statutory entitlements and by causing any stock options awarded to Mr. Crowe, which have
not yet vested, to vest immediately. Mr. Crowe will be entitled to the same lump sum amount in the event he elects to
terminate his employment within 90 days following a change of control or as a result of conditions that amount to
constructive dismissal. See "Termination and Change of Control Benefits" below.
The Company employs Mr. Bruce Colwill as its CFO under an employment agreement dated December 20, 2010, as
amended. Mr. Colwill 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 a lump sum amount equal to 18
months’ salary and the aggregate amount of all other remuneration, bonuses and benefits that he would otherwise have
received over the ensuing 18-month period (collectively, the "Severance Amount"). Mr. Colwill is also entitled to the
Severance Amount in the event he resigns for good reason within the one year period following a change of control. See
"Termination and Change of Control Benefits" below.
105
The Company employs Ms. Mona Forster as Executive Vice President and Mr. Robert Cann as Vice President,
Exploration under employment agreements dated November 1, 2007, as amended. The terms of employment for Ms.
Forster and Mr. Cann are the same as those described for Mr. Colwill above. See "Termination and Change of Control
Benefits" below.
The Company employs Ms. Susan McLeod as Vice President, Legal Affairs and Corporate Secretary under an
employment agreement dated September 21, 2010, as amended. Ms. McLeod is required to provide the Company with
one month’s prior notice in the event she wishes to resign. The Company may terminate her employment without cause
by providing her with the 18-month Severance Amount. Ms. McLeod will be entitled to the Severance Amount in the
event she elects to terminate her employment within 90 days following a change of control or as a result of conditions that
amount to constructive dismissal. See "Termination and Change of Control Benefits" below.
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.
Option-based Awards
Share-based Awards
Name
Number of Securities
underlying
unexercised options
(#)
Option
exercise
price
(C$)
Gregory Crowe
Bruce Colwill
Mona Forster
Robert Cann
Susan McLeod
150,000
150,000
450,000
350,000
300,000
200,000
100,000
125,000
375,000
200,000
250,000
110,000
125,000
350,000
150,000
225,000
110,000
125,000
325,000
150,000
225,000
300,000
125,000
375,000
150,000
225,000
$2.86
$1.25
$0.56
$0.30
$0.21
$3.47
$2.23
$1.25
$0.56
$0.30
$0.21
$2.86
$1.25
$0.56
$0.30
$0.21
$2.86
$1.25
$0.56
$0.30
$0.21
$2.34
$1.25
$0.56
$0.30
$0.21
Value of
unexercised
in-the-money
options
(C$)
Number of
shares or units
of shares that
have not vested
(#)
Market or payout
value of share-
based awards that
have not vested
(#)
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Option expiration
date
November 22, 2015
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
January 4, 2016
July 15, 2016
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
November 22, 2015
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
November 22, 2015
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
September 22, 2015
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
106
The following table is a summary of all value vested or earned during the most recently completed financial year for the
NEOs.
Name
Option-based awards – Value
vested during the year
(US$)(1)
Share-based awards – Value
vested during the year
(US$)
Non-equity incentive plan
compensation – Value earned
during the year
(US$)
Gregory G. Crowe
Bruce Colwill
Mona Forster
Robert Cann
Susan McLeod
$0(2)
$0(3)
$0(4)
$0(4)
$0(4)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
(1)
(2)
(3)
(4)
Value vested during the year is calculated by subtracting the exercise price of the option (being no less than the market price of the Company’s
common shares on the date of grant) from the market price of the Company’s common shares on the date the option vested (being the closing
price of the Company’s shares on the TSX on the last trading day prior to the vesting date).
300,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on
the award date.
250,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on
the award date.
225,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on
the award date.
There were no options exercised by the NEOs during the most recently completed financial year.
Termination and Change of Control Benefits
Gregory Crowe
Under the terms of the employment agreement with Mr. Crowe, the Company may terminate Mr. Crowe’s employment
immediately at any time prior to the expiry of the term without cause, by providing him with a lump sum payment equal to
24 months’ salary and statutory entitlements (the "Severance Payment"). Mr. Crowe is also entitled to the Severance
Payment should the agreement be terminated by Mr. Crowe for Good Reason (defined below) or by Mr. Crowe within 90
days of a Change of Control (defined below) (in each of the three cases, a "Severance Payment Triggering Event").
"Change of Control" is defined as:
(i)
(ii)
(iii)
(iv)
the acquisition by any "offeror" as defined in Part XX of the Securities Act (Ontario) of beneficial
ownership of more than 20% of the outstanding voting securities of the Company, by means of a takeover
bid or otherwise;
any consolidation or merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company would be converted into cash, securities or other
property, other than a merger of the Company in which shareholders immediately prior to the merger have
the same proportionate ownership of stock of the surviving corporation immediately after the merger;
any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company;
the approval by the shareholders of the Company of any plan of liquidation or dissolution of the Company;
or
(v)
the Incumbent Directors cease to constitute a majority of the Board.
"Good Reason" means any circumstance in which Mr. Crowe is induced by actions of the Company to terminate his
employment other than on a purely voluntary basis, and without limiting the generality of the foregoing shall include:
(i)
a reduction or diminution in the level of responsibility, title or office of Mr. Crowe;
107
(ii)
a reduction in the compensation level of Mr. Crowe, taken as a whole;
(iii)
forced relocation to another geographic location; or
(iv)
the failure of the Company or any successor corporation to maintain substantially similar employment terms
with Mr. Crowe after a Change of Control as were in existence prior to the Change of Control.
"Incumbent Director" means any member of the Board (other than Mr. Crowe) 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, 2014, Mr. Crowe would not have had an immediate benefit. If a
Severance Payment Triggering Event were also to have taken place, Mr. Crowe would have been entitled to an immediate
payment of approximately $596,710.
Mr. Crowe 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, Mona Forster, Robert Cann, Susan McLeod
Under the terms of each of the employment agreements with Bruce Colwill, Mona Forster, Robert Cann and Susan
McLeod, the Company may terminate the NEO’s employment at any time without cause by providing the NEO with a
lump sum payment equal to 18 month’s salary and the aggregate amount of all other remuneration, bonuses and benefits
(including the present cash value of any non-cash remuneration, bonuses or benefits) that the NEO would otherwise have
received over the ensuing 18 month period (the "Severance Payment"). Each NEO, other than Ms. McLeod, is also
entitled to the Severance Payment should he or she elect to resign with Good Reason (defined below) within one year of a
Change of Control (defined below) (the delivery of notice of termination of employment without cause or resignation with
Good Reason being, in each case, a "Severance Payment Triggering Event"). Ms. McLeod will also become entitled to
the Severance Payment in the event she terminates her employment for Good Reason or she terminates her employment
within 90 days of any Change of Control (in Ms. McLeod’s case, the delivery of notice of termination of employment
without cause or the expiry of one month’s prior written notice of termination of employment for Good Reason or within
90 days of any Change of Control is a "Severance Payment Triggering Event").
"Change of Control" is defined as:
(i)
(ii)
(iii)
the sale, transfer or disposition of the Company’s assets in complete liquidation or dissolution of the
Company;
the Company amalgamates, merges or enters into a plan of arrangement with another company at arm’s
length to the Company and its affiliates (the "Group"), other than an amalgamation, merger or plan of
arrangement that would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into voting securities of the
surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting
entity outstanding immediately after such amalgamation, merger or plan of arrangement; or
any person or combination of persons at arm’s length to the Group acquires or becomes the beneficial owner
of, directly or indirectly, more than 20% of the voting securities of the Company, whether through the
acquisition of previously issued and outstanding voting securities, or of voting securities that have not been
previously issued, or any combination thereof, or any other transaction having a similar effect, and such
person or combination of persons exercise(s) the voting power attached to such securities in a manner that
causes the Incumbent Directors to cease to constitute a majority of the Board.
"Good Reason" is defined as the occurrence of any of the following without the NEO’s written consent:
(i)
(ii)
a material change (other than a change that is clearly consistent with a promotion) in the NEO’s position or
duties, responsibilities, reporting relationship, title or office;
a reduction of the NEO’s salary, benefits or any other form of remuneration or any change in the basis upon
which such salary, benefits or other form of remuneration payable by the Company is determined;
(iii)
forced relocation to another geographic area;
108
(iv)
any material breach by the Company of a material provision of the employment agreement; or
(v)
the failure by the Company to obtain an effective assumption of its obligations hereunder by any successor
to the Company, including a successor to a material portion of its business.
"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, 2014, none of the foregoing NEOs would 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 $357,661 within 10 days of the
Severance Payment Triggering Event;
Ms. Forster would have been entitled to a payment of approximately $348,093 within 10 days of the
Severance Payment Triggering Event;
Mr. Cann would have been entitled to a payment of approximately $359,067 within 10 days of the
Severance Payment Triggering Event; and
Ms. McLeod would have been entitled to a payment of approximately $348,228 immediately upon the
Severance Payment Triggering Event, or in the case of delivery of notice of termination of employment
without cause, within 10 days of the Severance Payment Triggering Event.
Each of the NEOs 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
Directors’ Fees
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 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 Company’s senior management
team and independent directors and to recommend required changes (if any) to pay elements and strategy to align the
Company with current market practices. LaneCaputo recommended that effective January 1, 2014, the annual base
retainer payable to non-executive directors to compensate them for acting as directors of the Company be increased from
C$17,250 to C$25,000. This recommendation was adopted by the Compensation Committee and the Board. In 2014,
James Harris was paid an additional cash retainer of C$19,750 as compensation for acting as the Deputy Chairman of the
Board and C$5,250 for acting as the chair of the CGNC. Gorden Glenn received an additional C$12,500 for acting as the
chair of the Audit Committee. Alan Edwards received an additional C$5,250 for acting as the chair of the Technical
Committee. Lord Howard was paid a total of C$111,4942 in 2014, which includes the C$25,000 base retainer and
additional compensation for acting as the Chairman of the Board. Mr. Bottomer, who was the Company’s Vice President,
Business Development until December 31, 2013, was not paid any fees to compensate him for acting as a director in 2014.
In late 2014, the Compensation Committee recommended to the Board that effective January 1, 2015, Mark Bailey receive
an additional cash retainer of C$5,250 for acting as the chair of the Compensation Committee. Mr. Harris also voluntarily
offered to reduce his additional cash retainer for acting as the Deputy Chairman of the Board by C$5,000 to C$14,750,
and Lindsay Bottomer was granted the annual base retainer of C$25,000 to compensate him for acting as a director of the
Company. In February 2015, Lord Howard voluntarily offered to reduce his total annual compensation from £60,000 to
£40,000 and James Harris, while retaining his role as an independent director, stepped down from his position as Deputy
Chairman of the Board, both with effect from March 1, 2015.
2Lord Howard’s compensation is negotiated and settled in British pounds sterling. The exchange rate used to convert 2014 compensation to C$ is
1.8582.
109
Incentive Stock Options
The granting of incentive stock options provides a link between non-executive director compensation and the Company’s
share price. It also rewards non-executive directors for achieving results that improve Company performance and thereby
increase shareholder value. Incentive stock options are an important component of non-executive director compensation
for the Company and other members of its peer group, which aren’t large enough to justify the adoption of more costly
deferred share plans or restricted share plans, and which don’t have any revenue making it difficult to pay larger cash
retainers.
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.
In December 2014, the Compensation Committee recommended that the Board award incentive stock options to each of
the non-executive directors in recognition of the role that the non-executive directors played in providing strategic input
and corporate oversight as well as assisting management to meet certain objectives in 2014. The Board approved the
Compensation Committee’s recommendations, and in December 2014 awarded to each of the non-executive directors
options to purchase 100,000 common shares at an exercise price of C$0.21 for five years. The terms and conditions of the
grants, including vesting provisions and exercise prices, were determined by the Board at the time of grant, in accordance
with the terms and conditions of the Plan.
The following table is a summary of all compensation provided to the directors of the Company (other than directors who
are also NEOs) for the most recently completed financial year.
Name(1)
Mark Bailey
James Harris
Michael Howard
Alan Edwards
Fees
earned
(US$)
$21,550
$43,100
$96,107
$26,075
Lindsay Bottomer(3)
$0
Gorden Glenn
$32,325
Share-based
awards
(US$)
Option-based
awards
(US$)(2)
Non-equity incentive
plan compensation
(US$)
Pension
value
(US$)
All other
compensation
(US$)
Nil
Nil
Nil
Nil
Nil
Nil
$9,329
$9,329
$9,329
$9,329
$9,329
$9,329
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Total
(US$)
$30,879
$52,429
$105,436
$35,404
$0
$0
$0
$0
$230,145
$239,474
$0
$41,654
(1)
(2)
(3)
In addition to being a director of the Company, Gregory Crowe is also an NEO. For disclosure regarding Mr. Crowe’s compensation, please
refer to the Summary Compensation Table above.
The Company uses the Black-Scholes option-pricing model for determining fair value of stock options issued at the grant date. The Company
selected the Black-Scholes option-pricing model because it is widely used in estimating option based compensation values by Canadian and
U.S. public companies. The practice of the Company is to grant all option based awards in Canadian currency, and then convert the grant date
fair value amount to U.S. currency for reporting the value of the grants in the Company’s financials. The conversion rate for each grant is the
average of the rates quoted by the Bank of Canada as its noon spot rate of the last day of the three months in the quarter in which the grant is
made. The conversion rates for the purpose of the grants in this table are presented below and are based on the applicable conversion rate on the
date of grant, each as supplied by the Bank of Canada.
In addition to being a director of the Company, Lindsay Bottomer was employed until December 31, 2013 as the Company’s Vice President,
Business Development. Mr. Bottomer did not receive fees from the Company in 2014 for acting as a director. He received option-based awards
of $9,329. Mr. Bottomer’s severance payment ($209,562) and vacation pay ($20,583) resulting from his retirement on December 31, 2013 are
reported as Other Compensation.
The following table is a summary of all option-based awards to the directors of the Company (other than directors who are
also NEOs) that were outstanding at the end of the most recently completed financial year. There were no share-based
awards outstanding at the end of the most recently completed financial year.
110
Name(1)
Mark Bailey
James Harris
Michael Howard
Alan Edwards
Lindsay
Bottomer(2)
Gorden Glenn
Option-based Awards
Share-based Awards
Number of
Securities
underlying
unexercised
options
(#)
Option exercise
price
(C$)
Option expiration
date
Value of
unexercised in-
the-money
options
(C$)
Number of
shares or units of
shares that have
not vested
(#)
Market or
payout value of
share-based
awards that have
not vested
(#)
125,000
100,000
230,000
75,000
100,000
135,000
100,000
255,000
75,000
100,000
125,000
100,000
255,000
150,000
100,000
100,000
100,000
100,000
230,000
75,000
100,000
135,000
125,000
275,000
75,000
100,000
100,000
230,000
100,000
100,000
$2.86
$1.25
$0.56
$0.30
$0.21
$2.86
$1.25
$0.56
$0.30
$0.21
$2.86
$1.25
$0.56
$0.34
$0.30
$0.21
$2.94
$1.25
$0.56
$0.30
$0.21
$2.86
$1.25
$0.56
$0.30
$0.21
$0.73
$0.56
$0.30
$0.21
November 22, 2015
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
November 22, 2015
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
November 22, 2015
January 6, 2017
March 15, 2018
June 27, 2018
December 19, 2018
December 22, 2019
March 8, 2016
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
November 22, 2015
January 6, 2017
March 15, 2018
December 19, 2018
December 22, 2019
June 18, 2017
March 15, 2018
December 19, 2018
December 22, 2019
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
(1)
(2)
In addition to being a director of the Company, Gregory Crowe is an NEO. For disclosure regarding Mr. Crowe’s option-based awards, please
refer to the incentive plan awards section above.
In addition to being a director of the Company, Lindsay Bottomer was employed as the Company’s Vice President, Business Development until
December 31, 2013. Prior to January 1, 2014, Mr. Bottomer’s option-based awards were not received from the Company for acting as a
director.
The following table is a summary of all value vested or earned during the most recently completed financial year for the
directors of the Company (other than directors who are also NEOs).
111
Name(1)
Option-based awards – Value
vested during the year
(US$)(2)
Share-based awards – Value
vested during the year
(US$)
Non-equity incentive plan
compensation – Value earned
during the year
(US$)
Mark Bailey
James Harris
Michael Howard
Alan Edwards
Lindsay Bottomer
Gorden Glenn
$0(3)
$0(3)
$0(3)
$0(3)
$0(3)
$0(3)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
(1)
(2)
(3)
In addition to being a director of the Company, Gregory Crowe is an NEO. For disclosure regarding Mr. Crowe’s compensation, please refer to
the summary compensation table above.
Value vested during the year is calculated by subtracting the exercise price of the option (being no less than the market price of the Company’s
common shares on the date of grant) from the market price of the Company’s common shares on the date the option vested (being the closing
price of the Company’s shares on the TSX on the last trading day prior to the vesting date).
100,000 options were awarded on December 23, 2014 at an exercise price of C$0.21. $0 vested because all of the stock options vested in full on
the award date.
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.
Interest of Informed Persons in Material Transactions
Since the commencement of the Company’s most recently completed financial year, no informed person of the Company,
proposed director of the Company, or any associate or affiliate of any informed person or proposed director, had any
material interest, direct or indirect, in any transaction or any proposed transaction which has materially affected or would
materially affect the Company or any of its subsidiaries.
C.
Board Practices
The Board is currently comprised of seven directors. The size and experience of the Board is important for providing the
Company with effective governance in the mining industry. The Board’s mandate and responsibilities can be effectively
and efficiently administered at its current size. The Board has functioned, and is of the view that it can continue to
function, independently of management as required. Directors are elected for a term of one year at the annual general
meeting. The current directors were elected by the Company’s shareholders at the Annual General Meeting held on June
26, 2014.
The Board adopted a majority voting policy in May 2013. If the number of shares "withheld" from voting for the election
of a nominee is greater than the number of shares voted "for" his or her election, the director must submit his or her
resignation to the Chairman of the Board promptly after the shareholders’ meeting. The CGNC will consider the
resignation and will recommend to the Board whether or not to accept it. After considering the recommendations of the
CGNC, the Board will make its decision as to whether to accept or reject the resignation in question and the Company will
announce the Board’s decision, including any reasons for the Board not accepting a resignation, within 90 days following
the shareholders’ meeting. The policy does not apply if there is a contested director election or where the election
involves a proxy battle.
The Board has considered the relationship of each director to the Company and currently considers five of the seven
directors to be independent directors because they are independent of management and free from any interest and any
business or other relationship which could reasonably be expected to interfere with the director’s ability to act with a view
to the best interest of the Company, other than interests and relationships arising solely from shareholdings. Lindsay
Bottomer and Gregory Crowe are not independent by virtue of the fact that they are, or have within the last three years
been, executive officers of the Company.
112
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 Company’s success, and are satisfied that it is not constrained in
its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the
business and affairs of the Company. Committees meet independent of management and other directors.
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 Company’s approach to corporate governance is set
forth below.
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 director’s independent judgment. Section 1.4
of NI 52-110 and NYSE MKT Company Guide Section 803A also set out certain situations where a director will
automatically be considered to have a material relationship with the Company.
As at December 31, 2014, the Board was comprised of seven directors. Applying the definition set out in section 1.4 of
NI 52-110 and NYSE MKT Company Guide Section 803A, a majority (five of the seven members) of the Board are
independent. The members who are independent are Mark Bailey, James Harris, Lord Howard, Alan Edwards and
Gorden Glenn. Gregory Crowe and Lindsay Bottomer are not independent by virtue of the fact that Mr. Crowe is an
executive officer of the Company and Mr. Bottomer was an executive officer of the Company until December 31, 2013.
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
Company’s most recently completed financial year, there have been two in camera sessions.
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 Chairman’s role and responsibilities. The Chairman of the Board is primarily
responsible for leading the Board in the performance of its duties and ensuring the Board’s agenda will enable it to
successfully carry out its duties. As Chairman, Lord Howard also serves as an "ex officio" member of each Board
committee. More specifically, the Chairman of the Board is responsible for:
(a) monitoring and reporting to the Board regarding the effectiveness of the Board, as well as individual
members, in discharging its and their responsibilities;
(b)
(c)
(d)
(e)
(f)
in consultation with the President and CEO and, where appropriate, with other Board members, determining
Board and shareholder calendars and agendas;
leading the Board's periodic assessment of the job done by the CEO and his management team;
taking the lead in the Company’s adherence to the highest standards of corporate governance;
facilitating an open flow of information between management and the Board; and
presiding at meetings of the Board and the shareholders.
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.
113
Employment Contract with Gregory Crowe
The Company employs Mr. Gregory Crowe as President and CEO under an employment agreement dated
November 1, 2003, as amended. The agreement was for an initial term of two years, and is subject to automatic renewal
for additional one year periods, unless notice is provided by the Company six months in advance of the end of the term.
Mr. Crowe is required to provide the Company with one month’s prior written notice in the event he wishes to resign. The
Company may terminate Mr. Crowe’s employment at any time without cause by providing him with a lump sum payment
equal to 24 months’ salary and statutory entitlements and by causing any stock options awarded to Mr. Crowe, which have
not yet vested, to vest immediately. Mr. Crowe will be entitled to the same lump sum amount in the event he elects to
terminate his employment within 90 days following a change of control or as a result of conditions that amount to
constructive dismissal. See "Termination and Change of Control Benefits" above.
Otherwise, the Company does not have any service contracts with any directors.
Orientation and Continuing Education
Board turnover is relatively rare. As a result, the Board provides ad hoc orientation for new directors.
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.
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 management’s monitoring of the Company’s compliance with the Code.
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
114
Committee is composed of Gorden Glenn (chairman), Mark Bailey and James Harris, all of whom are independent (as
defined in NI 52-110 and NYSE MKT Company Guide Section 803(B)(2)(a)(i)) and financially literate (as defined in NI
52-110 and NYSE MKT Company Guide Section 803(B)(2)(a)(iii)). The Board has also assessed the qualifications of Mr.
Glenn, and has determined that Mr. Glenn is independent, financially literate and qualifies as a financial expert (as defined
in Item 407(d)(5) of Regulation S-K under the U.S. Exchange Act).
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
chair’s duties and responsibilities include presiding at each meeting of the Audit Committee, referring specific matters to
the Board in the case of a deadlock on any matter or vote, receiving and responding to all requests for information from
the Company or the independent auditors, leading the Audit Committee in discharging its tasks and reporting to the Board
on the activities of the Audit Committee.
The Company’s Annual Information Form for its financial year ended December 31, 2014 dated March 30, 2015 (the
"AIF"), and submitted on Form 6-K to the United States Securities and Exchange Commission on EDGAR, contains
additional disclosure regarding the Audit Committee. Please refer to the section of the AIF entitled "Standing Committees
of the Board" for further information.
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 chair’s duties and responsibilities
include presiding at each meeting of the Compensation Committee, leading the Compensation Committee in discharging
its tasks and reporting to the Board on the activities of the Compensation Committee.
The Compensation Committee is comprised of four directors, each of whom, in the judgement of the Board, meets the
independence requirements of applicable securities legislation and policies for compensation committee members. The
members of the Compensation Committee are: Mark Bailey (chairman), Alan Edwards, Gorden Glenn and James Harris.
Corporate Governance and Nominating Committee
The members of the CGNC are: James Harris (chairman), Alan Edwards and Gorden Glenn.
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 chair’s duties and responsibilities include ensuring the independence of
the Board in the discharge of its responsibilities, presiding at each meeting of the CGNC, leading it in discharging its tasks
and reporting to the Board on its activities.
Nomination of Directors
The CGNC examines the size and composition of the Board 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, 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 Board.
115
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 Board’s
performance, is responsible for overseeing the execution of a process assessing the effectiveness of the Board and the
Board committees as a whole, with particular reference to the Mandate of the Board and appropriate committee charters,
where applicable. It is required to report annually to the Board on such assessments.
Technical Committee
The members of the Technical Committee consist of Alan Edwards (chairman), Mark Bailey, Gorden Glenn, Lindsay
Bottomer and Gregory Crowe. Mr. Edwards is a mining engineer, and Mssrs. Bailey, Glenn, Bottomer and Crowe are
geologists. Neither Mr. Crowe, the President and Chief Executive of the Company, nor Mr. Bottomer is an independent
director. The mandate of the Technical Committee is to exercise all the powers of the Board (except those powers
specifically reserved by law to the Board itself) during intervals between meetings of the Board pertaining to the
Company’s mining properties, programs, budgets, and other related activities and the administration thereof.
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 Company’s mining properties. The Board has
adopted a Technical Committee Charter, which provides that the Technical Committee must have at least three members,
at least one of whom is independent, and all of whom are engineers or geoscientists, or otherwise have sufficient expertise
to comprehend and evaluate technical issues associated with the Company’s mining properties. The Technical Committee
must meet at least two times per year.
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
chair’s duties and responsibilities include presiding at each meeting of the Technical Committee, leading the Technical
Committee in discharging its tasks and reporting to the Board on the activities of the Technical Committee.
D.
Employees
At December 31, 2014, we had 35 full time and six temporary employees working for us in Canada, Mongolia and the
United States (35 full time and one temporary as at March 30, 2015). Thirteen employees are based in Vancouver, nine
employees are based in Ulaanbaatar, Mongolia, and four employees are based at our field camp in the southern Gobi
desert.
In the United States, Entrée had nine full time employees and six temporary employees at December 31, 2014 (nine full
time and one temporary as at March 30, 2015). The field operations are headed by an Exploration Manager who is
supported by three full time geologists, three full time core technicians, and two full time administrative staff. None of our
employees belong to a union or are subject to a collective agreement. We consider our employee relations to be good.
E.
Share Ownership
The table below sets out the municipality of residence and securities held by directors and executive officers as at
December 31, 2014.
Name and municipality of residence
Gregory Crowe
Bowen Island,
British Columbia, Canada
No. of Common
Shares beneficially
owned, directly or
indirectly, or
controlled(1).
1,425,820
No. of securities held on a fully-
diluted basis
Shares:
Warrants:
Stock options:
Total:
1,425,820
0
1,400,000
2,825,820
116
Name and municipality of residence
Mark Bailey
Bellingham, Washington
U.S.A.
Lindsay Bottomer
North Vancouver, British Columbia
Canada
James Harris
Vancouver, British Columbia
Canada
Rt. Honourable Lord Howard of
Lympne
London, UK
Alan Edwards
Tucson, Arizona
U.S.A
Gorden Glenn
Toronto, Ontario
Canada
Bruce Colwill
Vancouver, British Columbia
Canada
Mona Forster
Vancouver, British Columbia
Canada
Robert Cann
Nanaimo, British Columbia
Canada
Robert Cinits
Port Moody, British Columbia
Canada
Susan McLeod
West Vancouver, British Columbia
Canada
No. of Common
Shares beneficially
owned, directly or
indirectly, or
controlled(1).
No. of securities held on a fully-
diluted basis
392,922
599,985
443,062
128,800
108,000
0
25,700
216,374
126,225
0
9,500
Shares:
Warrants:
Stock options:
Total:
Shares:
Warrants:
Stock options:
Total:
Shares:
Warrants:
Stock options:
Total:
Shares:
Warrants:
Stock options:
Total:
Shares:
Warrants
Stock options
Total:
Shares:
Warrants
Stock options
Total:
Shares:
Warrants
Stock options
Total:
Shares:
Warrants:
Stock options:
Total:
Shares:
Warrants:
Stock options:
Total:
Shares:
Warrants:
Stock Options:
Total:
Shares:
Warrants:
Stock options:
Total:
392,922
0
630,000
1,022,922
599,985
0
710,000
1,309,985
443,062
0
665,000
1,108,062
128,800
0
830,000
958,800
108,000
0
605,000
713,000
0
0
530,000
530,000
25,700
0
1,250,000
1,275,700
216,374
0
960,000
1,176,374
126,225
0
935,000
1,061,225
0
0
950,000
950,000
9,500
0
1,175,000
1,184,500
(1)
Meaning an officer of the issuer, or a director or senior officer that has direct or indirect beneficial ownership of, control or direction over, or a
combination of direct or indirect beneficial ownership of and control or direction over securities of the issuer carrying more than 10% of the
voting rights attached to all the issuer’s outstanding securities.
117
To the best of the Company’s knowledge as at December 31, 2014, directors and executive officers, as a group,
beneficially owned, or controlled or directed, directly or indirectly, 3,476,388 common shares (not including common
shares issuable upon exercise of stock options) representing 2.37% of the then outstanding common shares.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets out information as of the end of the Company’s most recently completed financial year with
respect to compensation plans under which equity securities of the Company are authorized for issuance.
Plan Category
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
Weighted-average exercise
price of outstanding options,
warrants and rights
(C$)
Equity
approved by securityholders
compensation
plans
Equity compensation plans not
approved by securityholders
Total
(1)
(a)
13,779,000
Nil
13,779,000
(b)
$0.85
N/A
$0.85
Number of securities
remaining available for future
issuances under equity
compensation plans
(excluding securities reflected
in column (a))
(c) (1)
919,439
Nil
919,439
The maximum aggregate number of common shares issuable pursuant to options granted under the Plan and outstanding from time to time may
not exceed that number which represents 10% of the issued and outstanding common shares from time to time. The Company shall, at all times
while the Plan is in effect, reserve a sufficient number of common shares to satisfy the requirements of the Plan. The Plan also provides that
exercised options will automatically be available for subsequent grants and for the reservation and issuance of additional common shares
pursuant to such options. Accordingly, the Plan constitutes both a "rolling" plan and an "evergreen" plan, and its renewal must be approved by
the Company’s shareholders every three years in accordance with the policies of the TSX. The Plan was last approved on June 26, 2014.
Item 7. Major Shareholders and Related Party Transactions
A.
Major Shareholders
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 Company’s directors and senior officers, the following table sets forth certain information as at
March 30, 2015, concerning the ownership of the Company’s common shares as to each person known by the directors
and senior officers, based solely upon public records and filings, to be the direct or indirect owner of more than five
percent (5%) of the Company’s common shares, who owned more than five percent of the outstanding shares of each class
of the Company’s voting securities.
Shareholder Name
Number of Shares
Percentage of Issued Shares
Rio Tinto International Holdings Limited
Sandstorm Gold Ltd.
Caisse de depot et placement du Quebec
30,366,129(1)
17,857,142
12,531,400
20.7%
12.2%
8.5%
(1)
Rio Tinto International Holdings Limited holds 16,566,796 common shares directly. It also has a beneficial interest in 13,799,333 common
shares held by Turquoise Hill Resources Ltd.
Changes in ownership by major shareholders
To the best of the Company’s knowledge there have been no changes in the ownership of the Company’s shares other than
disclosed herein.
Voting Rights
The Company’s major shareholders do not have different voting rights.
118
Shares Held in the United States
As of March 30, 2015, there were approximately 22 registered holders of the Company’s shares in the United States, with
combined holdings of 22,013,038 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.
Control by Others
To the best of the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another
corporation, any foreign government, or any other natural or legal person, severally or jointly.
B.
Related Party Transactions
During the three-year period ended December 31, 2014:
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 Company’s Vice President, Corporate Development. The transaction
was in the normal course of operations and was measured at the exchange amount, which represented the amount
of consideration established and agreed to by the related party. All services under the agreement have been
provided.
The Company did not enter into any transactions with related parties during the year ended December 31, 2012.
C.
Interests of Experts and Counsel
Not Applicable.
Item 8. Financial Information
A.
Consolidated Statements and Other Financial Information
The following financial statements of the Company are attached to this Annual Report:
Independent Registered Public Accounting Firm’s Report on Consolidated Financial Statements;
Consolidated Balance Sheets as of December 31, 2014 and 2013;
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014,
2013, 2012;
Consolidated Statement of Stockholders’ Equity, including Balances as of December 31, 2011, December
31, 2012, December 31, 2013 and December 31, 2014;
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and
Notes to Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012.
Legal Proceedings
None.
119
Dividend Policy
The Company has not declared any dividends on its common shares since the inception of our Company on July 19, 1995.
There is no restriction in the Company’s Articles that will limit its ability to pay dividends on its common shares.
However, the Company does not anticipate declaring and paying dividends to its shareholders in the near future.
B.
Significant Changes
None.
Item 9. The Offer and Listing
A.
Price History of Stock
The Company’s common shares were traded on the TSX Venture Exchange until April 24, 2006. On April 24, 2006 the
Company began trading on the TSX. The Company’s symbol is "ETG" and its CUSIP number is 29383-100. The
Company’s common shares are also traded on the NYSE MKT under the symbol "EGI" and on the Frankfurt Stock
Exchange under the symbol "EKA" (WKN:121411).
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 Company’s common shares for the past five years, for each quarter for
the last two fiscal years, and for the last six months.
TSX
(Canadian Dollars)
NYSE MKT
(United States Dollars)
Last Five Fiscal Years
2014
2013
2012
2011
2010
2014
Fourth Quarter ended December 31, 2014
Third Quarter ended September 31, 2014
Second Quarter ended June 30, 2014
First Quarter ended March 31, 2014
2013
Fourth Quarter ended December 31, 2013
Third Quarter ended September 31, 2013
Second Quarter ended June 30, 2013
First Quarter ended March 31, 2013
Low
0.18
0.25
0.39
1.05
1.84
Low
0.18
0.27
0.31
0.32
Low
0.29
0.25
0.25
0.35
High
0.47
0.62
1.41
3.52
3.49
High
0.26
0.34
0.39
0.47
High
0.51
0.37
0.43
0.62
Low
0.16
0.22
0.40
1.00
1.58
Low
0.16
0.25
0.28
0.30
Low
0.27
0.24
0.22
0.34
High
0.52
0.62
1.41
3.40
3.59
High
0.31
0.35
0.43
0.52
High
0.52
0.38
0.40
0.62
120
Last Six Months
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
High
0.24
0.26
0.27
0.27
0.31
0.33
Low
0.19
0.20
0.18
0.21
0.22
0.27
High
0.19
0.21
0.23
0.24
0.26
0.30
Low
0.16
0.16
0.16
0.16
0.20
0.25
The closing price of the Company’s common shares as reported by the TSX on December 31, 2014 was C$0.205. The
closing price of the Company’s common shares as reported by the NYSE MKT on December 31, 2014 was $0.1715.
The Company’s common shares are issued in registered form. Computershare Investor Services Inc. is the registrar and
transfer agent for the Company’s common shares.
On December 31, 2014, the shareholders' list for the Company’s common shares showed 1,201 registered shareholders
and 146,984,385 common shares outstanding.
The Company has no outstanding securities not listed on a marketplace other than incentive stock options. Since the
beginning of the most recently completed financial year, stock options to purchase an aggregate 2,815,000 common shares
were granted. The following table outlines the details of each grant:
Exercise Price
(CDN$)
$0.21
Grant Date
December 23, 2014
Number of Options
2,815,000
B.
Plan of Distribution
Not Applicable.
C.
Markets
The Company’s common shares were traded on the TSX Venture Exchange until April 24, 2006. On April 24, 2006, the
Company began trading on the TSX. The Company’s symbol is "ETG" and its CUSIP number is 29383-100. The
Company’s common shares are also traded on the NYSE MKT under the symbol "EGI" and on the Frankfurt Stock
Exchange under the symbol "EKA" (WKN:121411).
D.
Selling Shareholders
Not Applicable.
E.
Dilution
Not Applicable.
F.
Expenses of the Issue
Not Applicable.
Item 10. Additional Information
A.
Share Capital
Not Applicable.
121
B.
Memorandum and Articles of Association
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 Company’s objects and
purposes and there are no restrictions on the business the Company may carry on in the Articles.
The Company is authorized to issue an unlimited number of common shares without par value. Each common share is
entitled to one vote. All common shares of the Company rank equally as to dividends, voting power and participation in
assets. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights
and no provision for exchange, exercise, redemption and retraction, purchase for cancellation, surrender or sinking or
purchase funds. Provisions as to modification, amendments or variation of such rights or such provisions are contained in
the BCBCA and the Company’s Articles.
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:
(a)
(b)
(c)
borrow money in such amount, in such manner, on such security, from such sources and upon such terms
and conditions as they think fit;
guarantee the repayment of money borrowed by any person or the performance of any obligation of any
person;
issue bonds, debentures, notes and other debt obligations either outright or as continuing security for any
indebtedness or liability, direct or indirect, or obligation of the Company or of any other person; and
(d) mortgage, charge (whether by way of a specific or floating charge), grant a security interest in or give other
security on the undertaking or on the whole or any part of the property and assets of the Company, both
present and future.
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 Company’s business,
he may be paid remuneration to be fixed by the Board, or, at the option of such director, by ordinary resolution, and such
remuneration may be either in addition to or in substitution for any other remuneration that he may be entitled to receive.
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 common shares of the Company are of the same class and, once issued, rank equally as to dividends,
voting powers, and participation in assets. Holders of common shares are entitled to one vote for each share held of record
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on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as
may be declared from time to time by the Board, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata the
assets of the Company, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to
call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for
cancellation, surrender, or sinking or purchase funds.
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:
a.
b.
c.
d.
e.
f.
g.
transferring the Company's jurisdiction from British Columbia to another jurisdiction;
giving financial assistance under certain circumstances;
certain conflicts of interest by directors;
disposing of all or substantially all of the Company's undertakings;
certain alterations of share capital;
altering any restrictions on the Company's business; and
certain reorganizations of the Company.
There are no restrictions on the repurchase or redemption of common shares of the Company while there is any arrearage
in the payment of dividends or sinking fund installments.
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 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 Company’s Articles that would have an effect of delaying, deferring or preventing a change in
control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring
involving the Company (or any of its subsidiaries).
Shareholder ownership must be disclosed to Canadian securities administrators and the TSX by any shareholder who owns
more than 10% of the Company’s outstanding common shares.
C.
Material Contracts
The Company has the following material contracts:
1.
Equity Participation and Funding Agreement dated February 14, 2013 between Entrée Gold Inc. and
Sandstorm Gold Ltd.
See "Item 4. Information on the Company – B. Business Overview – Agreements with Sandstorm – Equity
Participation and Funding Agreement" above.
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2.
Joint Venture Agreement deemed effective June 30, 2008 between Entrée Gold Inc. and Ivanhoe Mines
Mongolia Inc. XXK (now OTLLC).
Pursuant to the Earn-In Agreement, a joint venture was deemed to be 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 Joint Venture
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 Joint Venture
Property.
3.
Equity Participation and Earn-in Agreement dated October 15, 2004, between Entrée Gold Inc. and
Ivanhoe Mines Ltd. (now Turquoise Hill), as amended on November 9, 2004 and subsequently assigned to
Ivanhoe Mines Mongolia Inc. XXK (OTLLC) on March 1, 2005.
Under the Earn-In Agreement, OTLLC earned a 70% interest in mineralization above a depth of 560 metres
on the Joint Venture 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 deemed to be formed and the parties were required to enter into 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.
D.
Exchange Controls
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 Company’s
securities, except as discussed below under "Item 10. Additional Information – E. Taxation".
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.
E.
Taxation
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and
disposition of common shares in the capital of the Company by a United States resident, and who holds common shares
solely as capital property, referred to in this summary as a "U.S. Holder". This summary is based on the current
provisions of the Income Tax Act (Canada) (the "Tax Act"), the regulations thereunder, all amendments thereto publicly
proposed by the government of Canada, the published administrative practices of Revenue Canada, Customs, Excise and
Taxation, and the current provisions of the Convention Between Canada and the United States of America with Respect to
Taxes on Income and on Capital, signed September 26, 1980, as amended (the "Canada-U.S. Tax Convention"). Except
as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including
without limitation, any United States) tax law or treaty. It has been assumed that all currently proposed amendments will
be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although
no assurance can be given in these respects.
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Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder’s particular
circumstances.
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. Holder’s common shares. The statutory rate of withholding tax is 25% of the gross amount
of the dividend paid. The Canada-U.S. Tax Convention reduces the statutory rate with respect to dividends paid to a U.S.
Holder, if that U.S. Holder is eligible for benefits under the Canada-U.S. Tax Convention. Where applicable, the general
rate of withholding tax under the Canada-U.S. Tax Convention is 15% of the gross amount of the dividend, but if the U.S.
Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the
rate of withholding tax is 5% for dividends paid or credited to such corporate U.S. Holder. The Company is required to
withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of
Canada for the account of the U. S. Holder.
A non-resident Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the
disposition or deemed disposition of a common share unless the common share constitutes "taxable Canadian property" of
the U.S. Holder for purposes of the Tax Act and the gain is not exempt from tax pursuant to the terms of the Canada-U.S.
Tax Convention.
Provided that the common shares are listed on a "designated stock exchange" for purposes of the Tax Act (which currently
includes the TSX) at the time of disposition, the common shares generally will not constitute "taxable Canadian property"
of a U.S. Holder, unless at any time during the 60 month period immediately preceding the disposition: (i) the U.S.
Holder, persons with whom the U.S. Holder did not deal at "arm’s length" for the purposes of the Tax Act, or the U.S.
Holder together with all such persons, owned 25% or more of the issued shares of any class of the Company and; (ii) more
than 50% of the fair market value of the common shares was derived directly or indirectly from one or any combination of
real or immovable property situated in Canada, "Canadian resource properties" (as defined in the Tax Act), "timber
resource properties" (as defined in the Tax Act), or options in respect of, or interests in, or for civil law rights in, such
property whether or not such property exists.
Certain withholding and reporting obligations will also generally apply in connection with the disposition of common
shares by a U.S. Holder that constitutes, or are deemed to constitute, "taxable Canadian property" (and are not "treaty-
protected property" as defined in the Tax Act).
U.S. Holders who may hold common shares as "taxable Canadian property" should consult their own tax advisors.
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 common shares of the
Company.
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. In addition, this summary does not take into account the
individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences
to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly,
this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to
any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common
shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each
U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and non-U.S. tax consequences 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
common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is
different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this
summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the
positions taken in this summary.
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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 common shares that is for U.S. federal
income tax purposes:
an individual who is a citizen or resident of the U.S.;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under
the laws of the U.S., any state thereof or the District of Columbia;
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more
U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S. person.
Non-U.S. Holders
For purposes of this summary, a "non-U.S. Holder" is a beneficial owner of common shares that is not a U.S. Holder or is
a partnership. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from
and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should
consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax
treaties) relating to the acquisition, ownership, and disposition of common shares.
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 as part of a straddle, hedging transaction,
conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquired common
shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) that hold
common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for
investment purposes); or (h) own or have owned (directly, indirectly, or by attribution) 10% or more of the total
combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal
income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the
U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax
Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in
connection with carrying on a business in Canada; (d) persons whose common shares constitute "taxable Canadian
property" under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the
Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not
limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal,
U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating
to the acquisition, ownership and disposition of common shares.
126
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, the U.S. federal income tax consequences to such partnership and the partners of such
partnership generally will depend on the activities of the partnership and the status of such partners (or owners). This
summary does not address the tax consequences to any such partnership or partner. Partners of entities or arrangements
that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the
U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of 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. Holder’s holding period, then certain different and
potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the
acquisition, ownership and disposition of common shares. In addition, in any year in which the Company is classified as a
PFIC, such holder will be required to file an annual report with the IRS containing such information as Treasury
Regulations or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an
extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors
regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS
Form 8621.
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 Company’s assets either produce passive income or are
held for the production of passive income, based on the quarterly average of the fair market value of such assets (the "asset
test"). "Gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and
from incidental or outside operations or sources, and "passive income" generally includes, for example, dividends,
interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities
transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all
(85% or more) of a foreign corporation’s commodities are stock in trade of such foreign corporation or other property of a
kind which would properly be included in inventory of such foreign corporation, or property held by such foreign
corporation primarily for sale to customers in the ordinary course of business and certain other requirements are satisfied.
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, 2014, and may be a PFIC
in future tax years. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC
has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a
PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to
differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and
income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of
the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made
by the Company (or a Subsidiary PFIC) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor
regarding the PFIC status of the Company and any Subsidiary PFIC.
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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 common shares will depend on whether such U.S. Holder makes an election to treat the Company and each
Subsidiary PFIC, if any, as a "qualified electing fund" or "QEF" under Section 1295 of the Code, or a "QEF Election", or a
mark-to-market election under Section 1296 of the Code, or a "Mark-to-Market Election". A U.S. Holder that does not
make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a "Non-Electing U.S.
Holder".
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 common shares, and (b) any excess distribution received on our
common shares. A distribution generally will be an "excess distribution" to the extent that such distribution (together with
all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three
preceding tax years (or during a U.S. Holder’s holding period for our common shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including
an indirect disposition of the stock of any Subsidiary PFIC), and any "excess distribution" received on common shares,
must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares.
The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess
distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts
allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary
income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if
such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any
such interest paid as "personal interest", which is not deductible.
If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, the Company
will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company
ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC
status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but
not loss, as if such common shares were sold on the last day of the last tax year for which the Company was a PFIC.
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
common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect
to its common shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal
income tax on such U.S. Holder’s pro rata share of, (a) the net capital gain of the Company, which will be taxed as long-
term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary
income to such U.S. Holder. Generally, "net capital gain" is the excess of (i) net long-term capital gain over (ii net short-
term capital loss, and "ordinary earnings" are the excess of (i) "earnings and profits" over (ii) net capital gain. A U.S.
Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which
the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company.
However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a
QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF
Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current
U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such
interest paid will be treated as "personal interest", which is not deductible.
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. Holder’s tax basis in our common shares to reflect the amount included in income or allowed as a tax-free
distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize
capital gain or loss on the sale or other taxable disposition of common shares.
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. Holder’s holding period for our common shares in which the Company was a PFIC. A U.S.
Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder
128
files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election
for the first year in the U.S. Holder’s holding period for our common shares, the U.S. Holder may still be able to make a
timely and effective QEF Election in a subsequent year if such U.S. Holder also makes a "purging" election to recognize
gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were
sold for their fair market value on the day the QEF Election is effective.
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 common shares. Each U.S. Holder should
consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
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 common shares are marketable stock. Our common
shares generally will be "marketable stock" if our common shares are regularly traded on, (a) a national securities
exchange that is registered with the SEC, (b) the national market system established pursuant to section 11A of the U.S.
Exchange Act, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the
country in which the market is located, provided that, (i) such foreign exchange has trading volume, listing, financial
disclosure, and meets other requirements and the laws of the country in which such foreign exchange is located, together
with the rules of such foreign exchange, ensure that such requirements are actually enforced, and (ii) the rules of such
foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other
market, such stock generally will be "regularly traded" for any calendar year during which such stock is traded, other than
in de minimis quantities, on at least 15 days during each calendar quarter.
A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to
the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder
does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for our
common shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed
above will apply to certain dispositions of, and distributions on, our 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 common shares, as of the
close of such tax year over (ii) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-
Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder’s adjusted
tax basis in our common shares, over (ii) the fair market value of such common shares (but only to the extent of the net
amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in our
common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market
Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-
Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (i) the amount
included in ordinary income because of such Mark-to-Market Election for prior tax years over (ii) the amount allowed as a
deduction because of such Mark-to-Market Election for prior tax years).
129
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 common shares cease to be "marketable stock" or the IRS consents to revocation
of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for
making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to our common shares, no such
election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because
such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the application of the
default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or
distributions from a Subsidiary PFIC.
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 common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations).
However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which
common shares are transferred.
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 as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made
a taxable disposition of such 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 common shares will be required to include the amount of such distribution in gross income as a
dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or
accumulated "earnings and profits" of the Company, as computed for U.S. federal income tax purposes. A dividend
generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC. To the extent that a
distribution exceeds the current and accumulated "earnings and profits" of the Company, such distribution will be treated
first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in our common shares and thereafter as gain
from the sale or exchange of such common shares. See "Sale or Other Taxable Disposition of common shares" below.
However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income
tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to our
common shares will constitute ordinary dividend income. Dividends received on common shares generally will not be
eligible for the "dividends received deduction". Subject to applicable limitations and provided the Company is eligible for
the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company to non-corporate U.S. Holders, including
individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends,
provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC
in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should
consult its own tax advisor regarding the application of such rules.
130
Sale or Other Taxable Disposition of common shares
Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of common shares, a U.S. Holder
generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair
market value of any property received and such U.S. Holder's tax basis in such common shares sold or otherwise disposed
of. Subject to the PFIC rules discussed above, gain or loss recognized on such sale or other disposition generally will be
long-term capital gain or loss if, at the time of the sale or other disposition, our common shares have been held for more
than one year.
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 common shares and net
gains from the disposition of the common shares. Further, excess distributions treated as dividends, gains treated as
excess distributions under the PFIC rules discussed above, and mark-to-market inclusions and deductions are all included
in the calculation of net investment income.
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 common shares that will be subject to the additional tax on net investment income, a U.S. Holder
who has made a QEF Election will be required to recalculate its basis in the common shares excluding QEF basis
adjustments.
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 common shares.
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 common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the
exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars
at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt.
Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign
currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income
or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method. Each U.S.
Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning,
and disposing of foreign currency.
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 common shares generally will be entitled, at the election of such U.S.
Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S.
Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s
income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes
paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the
proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s "foreign source" taxable
131
income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items
of income and deduction must be classified, under complex rules, as either "foreign source" or "U.S. source". Generally,
dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the
sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as
otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the
amount of a distribution with respect to our common shares that is treated as a "dividend" may be lower for U.S. federal
income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit
allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of
income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding
the foreign tax credit rules.
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 common shares are held in an account at certain financial
institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult
with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an
IRS Form 8938.
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, common shares will generally be subject to information reporting and backup withholding
tax, at the rate of 28%, if a U.S. Holder, (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number
(generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that
such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify,
under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the
IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons
generally are excluded from these information reporting and backup withholding rules. Any amounts withheld under the
U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if
any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
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.
F.
Dividends and Paying Agents
Not Applicable.
G.
Statement by Experts
Not Applicable.
H.
Documents on Display
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.
132
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 Form 20-F and more recent information automatically updates and supersedes more dated information contained or
incorporated by reference in this Form 20-F.
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 3Z3. The
Company is required to file financial statements and other information with the Securities Commission in each of the
Provinces of Canada, except Quebec, electronically through SEDAR which can be viewed at www.sedar.com.
I.
Subsidiary Information
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 Company’s maximum exposure to credit risk.
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 Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are held in
several currencies (mainly Canadian Dollars, U.S. Dollars and Australian Dollars). Such foreign currency balances are
subject to fluctuation against the Canadian Dollar and the U.S. Dollar, being the Company’s reporting currency.
133
The Company was exposed to foreign exchange gains and losses on the following balances, as at December 31, 2014 and
2013:
Cash and cash equivalents
Other
Accounts payable and accrued liabilities
Net balance
Equivalent in Canadian Dollars
Rate to convert to C$
2014
(in thousands)
US
Dollars
Australian
Dollars
Peruvian
Nuevo Sol
Chinese
Yuan
Mongolian
Tugriks
31,052
312
(1,556)
29,808
34,580
1.1601
1,084
13
(95)
1,002
950
0.9479
(97)
-
-
(97)
(38)
28
-
-
28
5
87,976
43,624
(122)
131,478
81
0.3898
0.1869
0.0006144
Cash and cash equivalents
Other
Accounts payable and accrued liabilities
Net balance
Equivalent in Canadian Dollars
Rate to convert to C$
2013
(in thousands)
US
Dollars
39,551
184
(260)
39,475
41,986
1.0636
Australian
Dollars
Peruvian
Nuevo Sol
Chinese
Yuan
Mongolian
Tugriks
1,306
12
(47)
1,271
1,207
0.9496
-
-
(16)
(16)
(6)
28
-
-
28
5
60,280
223,087
(11,189)
272,178
175
0.3803
0.1757
0.0006415
Based on the above net exposures as at December 31, 2014, and assuming that all other variables remain constant, a 10%
depreciation or appreciation of the U.S. dollar against the Canadian dollar would result in an increase/decrease of
$2,980,794 (2013 - $3,947,492) in the Company’s net loss.
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 Company’s interest rate risk mainly arises from the interest rate impact on the cash and cash
equivalents. Cash and cash equivalents earn interest based on current market interest rates, which at December 31, 2014
ranged between 0.04% and 1.75%.
Based on the amount of cash and cash equivalents invested at December 31, 2014, and assuming that all other variables
remain constant, a 10% change in the applicable interest rate would result in an increase/decrease of $14,470 in the
interest earned by the Company per annum.
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, 2014 in the amount of $34 million in order to meet short-term business
requirements. At December 31, 2014, the Company had current liabilities of $2 million which are due on demand or
within 30 days.
134
Item 12. Description of Securities Other than Equity Securities
A. – C.
Not Applicable.
D.
American Depository Receipts
The Company does not have securities registered as American Depository Receipts.
Item 13. Defaults, Dividend Arrearages and Delinquencies
PART II.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
A.-D.
None.
E.
Use of Proceeds
Not Applicable.
Item 15. Controls and Procedures
A.
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s Audit Committee and
management, including the Company’s CEO and the Company’s CFO, of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the U.S. Exchange Act as
of December 31, 2014. Based on their evaluation, the Company’s CEO and CFO have concluded that the disclosure
controls and procedures were effective to give reasonable assurance that the information required to be disclosed by the
Company in reports that it files or submits under the U.S. Exchange Act is, (a) recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms, and (b) accumulated and communicated to
management, including its principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
B.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management, including the Company’s CEO and CFO, is responsible for establishing and maintaining
adequate internal control over the Company’s internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the U.S. Exchange Act. The Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting
includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly
reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary
to permit preparation of the consolidated financial statements in accordance with U.S. GAAP and that receipts and
expenditures are being made only in accordance with authorization of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
assets that could have a material effect on the consolidated financial statements.
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.
135
The Company’s management (with the participation of the CEO and the CFO) conducted an evaluation of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. This evaluation was
based on the criteria set forth in the original 1992 Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that the
Company’s internal control over financial reporting was effective as at December 31, 2014, and management’s assessment
did not identify any material weaknesses.
C.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by our registered public accounting
firm pursuant the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which permits the company to
provide only management’s report in this Annual Report. The Dodd-Frank Act permits a "non-accelerated filer" to provide
only management’s report on internal control over financial reporting in an Annual Report and omit an attestation report
of the issuer’s registered public accounting firm regarding management’s report on internal control over financial
reporting.
D.
Changes in 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 Company’s Board has determined that Gorden Glenn qualifies as a financial expert (as defined in Item 407(d)(5) of
Regulation S-K under the U.S. Exchange Act), is financially sophisticated (as determined in accordance with Section
803B(2)(iii) of the NYSE MKT Company Guide), and is independent (as determined under U.S. Exchange Act Rule 10A-
3 and section 803A of the NYSE MKT Company Guide).
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 Company’s website at www.entreegold.com and in print to any
shareholder who requests it. All required substantive amendments to the code, and all waivers of the code with respect to
any of the officers covered by it, will be posted on the Company’s website at www.entreegold.com within five business
days of the amendment or waiver, and provided in print to any shareholder who requests them.
During the fiscal year ended December 31, 2014, the Company did not substantively amend, waive or implicitly waive
any provision of the Code with respect to any of the directors, officers or employees subject to it.
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 Company’s independent registered public auditing firm, in each of the last two years.
136
Audit Fees(1)
Audit Related Fees(2)
Tax Fees(3)
All other fees
Total:
2014 (US$)
$51,720
$19,393
$Nil
$Nil
$71,113
2013 (US$)
$79,917
$20,860
$Nil
$Nil
$100,777
(1) Audits of the Company’s consolidated financial statements, meetings with the Audit Committee and management with respect to annual filings,
consulting and accounting standards and transactions, issuance of consent in connection with Canadian and United States securities filings.
(2) Audit-related fees paid for assurance and related services by the auditors that were reasonably related to the performance of the audit or the review
of the Company’s quarterly financial statements that are not included in Audit Fees.
(3)
Tax compliance, taxation advice and tax planning for international operations.
Pre-Approval of Audit and Non-Audit Services Provided by Independent Auditors
The Audit Committee pre-approves all audit services to be provided to the Company by its independent auditors. Non-
audit services that are prohibited to be provided to the Company by its independent auditors may not be pre-approved. In
addition, prior to the granting of any pre-approval, the Audit Committee must be satisfied that the performance of the
services in question will not compromise the independence of the independent auditors. There were no non-audit services
performed by the Company’s auditor for the fiscal year ended December 31, 2014.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
None.
None.
None.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F.
Changes in Registrant’s Certifying Accountant
Item 16G.
Corporate Governance
The Company’s common shares are listed on the NYSE MKT. Section 110 of the NYSE MKT Company Guide permits
the NYSE MKT to consider the laws, customs and practices of foreign issuers in relaxing certain NYSE MKT listing
criteria, and to grant exemptions from NYSE MKT listing criteria based on these considerations.
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 Company’s website is not part of this Annual Report.
A description of the significant ways in which the Company’s governance practices differ from those followed by
domestic companies pursuant to NYSE MKT standards is as follows:
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 Company’s quorum
requirement is set forth in its Articles. A quorum for a meeting of shareholders of the Company is two
persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the
shares entitled to be voted at the meeting.
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
137
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 common shares.
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 Committee’s Charter includes a requirement that each member of the Compensation
Committee be independent and that the Compensation Committee have the authority to retain outside
advisors and determine the extent of funding necessary for payment of consultants.
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,
2014, the Company had no mines in the United States that were subject to regulation by the MSHA under the Mine Act.
PART III.
Item 17. Financial Statements
See "Item 18 – Financial Statements".
Item 18. Financial Statements
The Company’s financial statements are stated in U.S. Dollars and are prepared in accordance with U.S. GAAP.
The following financial statements pertaining to the Company are filed as part of this Annual Report:
Independent Registered Public Accounting Firm’s Report on Consolidated Financial Statements;
Consolidated Balance Sheets as of December 31, 2014 and 2013;
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014,
2013 and 2012;
Consolidated Statement of Stockholders’ Equity, including Balances as of December 31, 2011, December
31, 2012, December 31, 2013 and December 31, 2014;
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and
Notes to Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012.
138
ENTRÉE GOLD INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
December 31, 2014
139
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Entrée Gold Inc.
We have audited the accompanying consolidated financial statements of Entrée Gold Inc. (the “Company”), which comprise
the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations and
comprehensive loss, stockholders’ equity, and cash flows for the years ended December 31, 2014, 2013, and 2012. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
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, 2014 and 2013, and the results of its operations and its cash flows for the years
ended December 31, 2014, 2013, and 2012 in conformity with accounting principles generally accepted in the United States of
America.
Vancouver, Canada
March 30, 2015
"DAVIDSON & COMPANY LLP"
Chartered Accountants
140
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.
141
ENTRÉE GOLD INC.CONSOLIDATED BALANCE SHEETS(Expressed in United States dollars)December 31,December 31,20142013ASSETSCurrent Cash and cash equivalents (Note 3)33,517,096$ 46,701,216$ Receivables133,729 203,346 Prepaid expenses856,358 751,140 Total current assets34,507,183 47,655,702 Equipment (Note 5)177,566 288,943 Mineral property interests (Note 6)44,419,538 48,806,565 Reclamation deposits474,959 491,808 Other assets 111,252 152,087 Total assets79,690,498$ 97,395,105$ LIABILITIES AND STOCKHOLDERS' EQUITYCurrentAccounts payable and accrued liabilities1,903,472$ 1,261,206$ Loans payable to Oyu Tolgoi LLC (Note 7)6,355,408 5,978,133 Deferred revenue (Note 8)34,507,372 37,638,211 Deferred income tax liabilities (Note 11)3,407,124 7,340,516 Total liabilities46,173,376 52,218,066 Stockholders' equityCommon stock, no par value, unlimited number authorized, (Note 9)177,138,693 177,065,075 146,984,385 (December 31, 2013 - 146,734,385) issued and outstandingAdditional paid-in capital20,346,551 20,095,161 Accumulated other comprehensive income (loss) (Note 14)(2,850,122) 465,615 Accumulated deficit(161,118,000) (152,448,812) Total stockholders' equity33,517,122 45,177,039 Total liabilities and stockholders' equity79,690,498$ 97,395,105$
The accompanying notes are an integral part of these consolidated financial statements.
142
ENTRÉE GOLD INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(Expressed in United States dollars) Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012 EXPENSESExploration (Note 6)9,054,887$ 6,102,992$ 8,234,354$ General and administration 4,151,910 6,638,262 5,236,226 Consultancy and advisory fees830,623 1,941,130 - Impairment of mineral property interests (Note 6)552,095 437,732 486,746 Depreciation 65,517 102,941 150,654 Gain on sale of mineral property interests(28,096) (451,892) (104,914) Foreign exchange gain(1,978,854) (1,113,728) (187,773) Loss from operations(12,648,082) (13,657,437) (13,815,293) Interest income295,023 431,596 190,449 Interest expense (Note 4)(264,869) (260,453) (229,359) Loss from equity investee (Note 4)(107,907) (146,051) (1,012,156) Fair value adjustment of asset backed commercial paper- 147,564 - Loss before income taxes(12,725,835) (13,484,781)(14,866,359)Current income tax recovery (expense) (Note 11)123,255 (319,112) - Deferred income tax recovery (expense) (Note 11)3,933,392 2,381,868 (329,770) Net loss(8,669,188)$ (11,422,025)$ (15,196,129)$ Comprehensive loss:Net loss(8,669,188)$ (11,422,025)$ (15,196,129)$ Foreign currency translation adjustment (Note 14)(3,315,737) (2,787,404) 1,351,668 Comprehensive loss:(11,984,925)$ (14,209,429)$ (13,844,461)$ Basic and diluted net loss per share(0.06)$ (0.08)$ (0.12)$ Weighted average number of common shares outstanding146,883,700 143,847,888128,650,791
The accompanying notes are an integral part of these consolidated financial statements.
143
ENTRÉE GOLD INC.CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY(Expressed in United States dollars) Number ofShares Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Balance, December 31, 2011127,016,788 165,574,192$ 17,420,307$ 1,901,351$ (125,830,658)$ 59,065,192$ Shares issued:Exercise of over allotment1,320,455 1,628,583 - - - 1,628,583 Exercise of stock options- (44,679) 44,679 - - - Mineral property interests540,000 378,776 - - - 378,776 Stock-based compensation- - 1,207,878 - - 1,207,878 Share issuance costs- (108,058) - - - (108,058) Foreign currency translation adjustment- - - 1,351,668 - 1,351,668 Net loss - - - - (15,196,129) (15,196,129) Balance, December 31, 2012128,877,243 167,428,814$ 18,672,864$ 3,253,019$ (141,026,787)$ 48,327,910$ Shares issued:Private placement17,857,142 9,722,897 - - - 9,722,897 Stock-based compensation- - 1,422,297 - - 1,422,297 Share issuance costs- (86,636) - - - (86,636) Foreign currency translation adjustment- - - (2,787,404) - (2,787,404) Net loss - - - - (11,422,025) (11,422,025) Balance, December 31, 2013146,734,385 177,065,075$ 20,095,161$ 465,615$ (152,448,812)$ 45,177,039$ Shares issued:Mineral property interests250,000 73,618 - - - 73,618 Stock-based compensation- - 251,390 - - 251,390 Foreign currency translation adjustment- - - (3,315,737) - (3,315,737) Net loss - - - - (8,669,188) (8,669,188) Balance, December 31, 2014146,984,385 177,138,693$ 20,346,551$ (2,850,122)$ (161,118,000)$ 33,517,122$
Supplemental disclosure with respect to cash flows (Note 15)
The accompanying notes are an integral part of these consolidated financial statements.
144
ENTRÉE GOLD INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in United States dollars) Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012CASH FLOWS FROM OPERATING ACTIVITIESNet loss(8,669,188)$ (11,422,025)$ (15,196,129)$ Items not affecting cash:Depreciation65,517 102,941 150,654 Stock-based compensation 251,390 1,422,297 1,207,878 Loss from equity investee 107,907 146,051 1,012,156 Interest expense264,869 260,453 229,359 Deferred income tax expense (recovery)(3,933,392) (2,381,868) 329,770 Gain on sale of mineral property interests(28,096) (451,892) (104,914) Impairment of mineral property interests552,095 437,732 486,746 Unrealized foreign exchange gain(1,966,349) (919,289) (178,639) Other items not affecting cash38,075 44,202 67,021 Changes in assets and liabilities:Receivables55,362 6,109 209,098 Prepaid expenses(176,164) (22,569) 197,321 Other assets35,451 (3,592) 22,913 Accounts payable and accrued liabilities784,886 760,600 (1,235,090) Deposit on metal credit delivering obligation- 40,000,000 - Net cash provided by (used in) operating activities(12,617,637) 27,979,150 (12,801,856) CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of capital stock- 9,722,897 1,628,583 Share issue costs- (86,636) (108,058) Net cash provided by financing activities- 9,636,261 1,520,525 CASH FLOWS FROM INVESTING ACTIVITIESMineral property interests(100,000) (50,000) (3,910,000) Reclamation deposits17,249 115,180 (207,962) Short-term investments- - 5,076,271 Acquisition of equipment(13,074) (7,623) (35,893) Proceeds from sale of royalty interest- 5,000,000 - Proceeds from sale of mineral property interests28,096 451,892 104,914 Net cash provided by (used in) investing activities(67,729) 5,509,449 1,027,330 Effect of foreign currency translation on cash and cash equivalents(498,754) (679,152) (2,689) Change in cash and cash equivalentsduring the year(13,184,120) 42,445,708 (10,256,690) Cash and cash equivalents, beginning of the year46,701,216 4,255,508 14,512,198 Cash and cash equivalents, end of the year33,517,096$ 46,701,216$ 4,255,508$ Cash paid for interest during the year-$ -$ -$ Cash paid for income taxes during the year(135,583)$ -$ -$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(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 “Company”), is the
exploration of mineral property interests. To date, the Company has not generated significant revenues
from its operations and is considered to be in the exploration stage.
All amounts are expressed in United States dollars, except for certain amounts denoted in Canadian dollars
("C$"), and Australian dollars ("A$").
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
Company’s ability to secure additional equity capital or receive other financial support, and in the longer
term to generate profits from business operations. Management believes that the Company has sufficient
working capital to maintain its operations for the next fiscal year.
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, valuation of asset-backed commercial paper and loss
contingencies. The Company bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances, the results of which form the
basis for making judgements about the other sources. The actual results experienced by the Company may
differ materially and adversely from the Company’s estimates. To the extent there are material differences
between estimates and the actual results, future results of operations will be affected.
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 $33,517,096 in cash at December 31, 2014.
145
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d...)
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 Company’s share of the investees’ earnings and losses is included in operations and
its investments therein are adjusted by a like amount. Dividends received are credited to the long-term
investment accounts.
Other long-term investments are classified as "available-for-sale" investments and unrealized gains and
losses on these investments are recorded in accumulated other comprehensive income as a separate
component of stockholders’ equity, unless the declines in market value are judged to be other than
temporary, in which case the losses are recognized in income in the period. Gains and losses from the sale
of these investments are included in income in the period.
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.
146
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d…)
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 transferor’s carrying amount or exchange
amount.
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 and accrued liabilities, are classified as loans and receivables, and
have a fair value approximating their carrying value, due to their short-term nature. The Company’s other
financial instruments, reclamation deposits, and loans payable are classified as loans and receivables, and
are measured at amortized cost.
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.’s significant subsidiaries is
the United Sates dollar. Upon translation into Canadian dollars for consolidation, monetary assets and
liabilities are translated at the exchange rate in effect at the balance sheet date while non-monetary assets
and liabilities are translated at historical rates. Revenue and expense items 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.
147
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (cont’d…)
Foreign currency translation (cont’d…)
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 stockholders’ equity as accumulated other comprehensive
income.
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, 2014, the total number of potentially
dilutive shares of common stock excluded from basic net loss per share was 13,779,000 (December 31,
2013 - 14,400,500; December 31, 2012 - 9,223,000).
Comparative figures
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Recent accounting pronouncements
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(ASU) No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810,
Consolidation”. This ASU does the following, among other things: a) eliminates the requirement to present
inception-to-date information on the statements of income, cash flows, and shareholders' equity, b)
eliminates the need to label the financial statements as those of a development stage entity, c) eliminates the
need to disclose a description of the development stage activities in which the entity is engaged, and d)
amends FASB ASC 275, “Risks and Uncertainties”, to clarify that information on risks and uncertainties
for entities that have not commenced planned principal operations is required. The amendments in ASU
No. 2014-10 related to the elimination of Topic 915 disclosures and the additional disclosure for Topic 275
are effective for public companies for annual and interim reporting periods beginning after December 15,
2014. Early adoption is permitted. The Company has evaluated this ASU and early adopted for the period
beginning on April 1, 2014.
In August 2014, the FASB issued “Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern” (“ASU 2014-15”). Historically, there has been no guidance in GAAP about management’s
responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going
concern. This ASU clarifies when and how management should be assessing their ability to continue as a
going concern. ASU 2014-15 is effective for fiscal years ending after December 15, 2016. Early adoption
of this standard is permitted, and the Company expects to adopt the standard for the fiscal year ending
December 31, 2015. The Company expects the adoption of ASU 2014-15 will have an impact on the
frequency with which going concern assessments are conducted but does not expect the adoption to have
significant changes to existing disclosure.
148
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
3.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash at bank and in hand of $33,517,096 as at December 31, 2014
(December 31, 2013 - $46,701,216).
4.
LONG-TERM INVESTMENTS
Equity Method Investment
The Company accounts for its interest in a joint venture with Oyu Tolgoi LLC (“OTLLC”), a company
owned 66% by Turquoise Hill Resources Ltd. (formerly Ivanhoe Mines Ltd.) (“Turquoise Hill”) and 34%
by the Government of Mongolia (Note 7), as a 20% equity investment. The Company’s share of the loss of
the joint venture is $107,907 for the year ended December 31, 2014 (December 31, 2013 - $146,051;
December 31, 2012 - $1,012,156) plus accrued interest expense of $264,869 for the year ended December
31, 2014 (December 31, 2013 - $260,453; December 31, 2012 - $229,359).
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 Company’s two principal assets are the Ann Mason project (the “Ann Mason Project”) in Nevada and
its interest in the Lookout Hill property in Mongolia.
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.
149
December 31, 2014December 31, 2013AccumulatedNet BookAccumulatedNet BookCostDepreciationValueCostDepreciationValueOffice equipment$81,314 $60,877 $20,437 $92,057 $64,123 $27,934 Computer equipment363,823 290,361 73,462 459,426 349,636 109,790 Field equipment217,036 141,797 75,239 251,604 144,786 106,818 Buildings48,762 40,334 8,428 246,540 202,139 44,401 $710,935 $533,369 $177,566 $1,049,627 $760,684 $288,943
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
6.
MINERAL PROPERTY INTERESTS (cont’d...)
Material Properties (cont’d...)
Ann Mason, Nevada, United States (cont’d...)
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 ($50,000 of
which has been paid); and (c) deliver a bankable feasibility study before the tenth anniversary of the
agreement.
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.
During the year ended December 31, 2014, the Company acquired certain upatented lode claims within or
continguous to the boundaries of its Ann Mason Project pursuant to which the Company paid $100,000 and
issued 250,000 common shares valued at $73,618.
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 arm’s-length Equity Participation and Earn-In Agreement
(the "Earn In Agreement") with Turquoise Hill. Under the Earn-In Agreement, Turquoise Hill agreed to
purchase equity securities of the Company, and was granted the right to earn an interest in what is now the
eastern portion of the Shivee Tolgoi mining licence and all of the Javhlant mining licence (together the
"Joint Venture Property"). Most of Turquoise Hill’s rights and obligations under the Earn-In Agreement
were subsequently assigned by Turquoise Hill to what was then its wholly-owned subsidiary, OTLLC. The
Government of Mongolia subsequently acquired a 34% interest in OTLLC from Turquoise Hill.
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.
150
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
6.
MINERAL PROPERTY INTERESTS (cont’d...)
Material Properties (cont’d...)
Lookout Hill, Mongolia (cont’d...)
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, notice (the "Notice") was delivered to the Company that the Ministry of Mining had
cancelled the July 2009 Order (the "2009 Order") registering the reserves on the Joint Venture Property.
The Notice stated that the 2009 Order breached sections of the Minerals Law of Mongolia and Charter of
the Minerals Resource Counsel that give the head of MRAM the authority to register reserves, rather than
the Minister of Mineral Resources and Energy. The Notice further advised that the Company is temporarily
restricted from transferring, selling or leasing the Shivee Tolgoi and Javhlant mining licences. On
September 4, 2013, the Minister of Mining issued Order No. 179, advising the Minerals Professional
Council to re-submit its previous conclusions regarding the reserves to MRAM for review and registration.
On September 6, 2013, the head of MRAM ordered that the reserves on the Joint Venture Property be
registered. The Company was also subsequently advised that the temporary transfer restriction on the joint
venture mining licences will be lifted.
As of December 31, 2014, the Entrée-OTLLC Joint Venture had expended approximately $26.9 million to
advance the Joint Venture Property. Under the terms of the Entrée-OTLLC Joint Venture, OTLLC
contributed on behalf of the Company its required participation amount charging interest at prime plus 2%
(Note 7).
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 - $437,732; December 31, 2012 - $486,746) against these properties.
Capitalized mineral property acquisition costs are summarized as follows:
Ann Mason capitalized mineral property acquisition costs are net of the $5 million Sandstorm NSR
Payment.
151
December 31, 2014December 31, 2013Ann Mason43,966,474$ 47,777,956$ Other453,064 1,028,609 Total44,419,538$ 48,806,565$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
6.
MINERAL PROPERTY INTERESTS (cont’d...)
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 Company’s behalf. Interest on each loan advance shall accrue at
an annual rate equal to OTLLC’s actual cost of capital or the prime rate of the Royal Bank of Canada, plus
two percent (2%) per annum, whichever is less, as at the date of the advance. The loans will be repayable
by the Company monthly from ninety percent (90%) of the Company’s share of available cash flow from
the Entrée-OTLLC Joint Venture. In the absence of available cash flow, the loans will not be repayable.
The loans are not expected to be repaid within one year.
8.
SANDSTORM FINANCING ARRANGEMENT
In February 2013, the Company entered into an equity participation and funding agreement with Sandstorm
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 Company’s share of gold, silver and copper production from
the Joint Venture Property as follows:
25.7% of the Company’s share of gold and silver, and 2.5% of the Company’s share of copper,
produced from the portion of the Shivee Tolgoi mining licence included in the Joint Venture
Property; and
33.8% of the Company’s share of gold and silver, and 2.5% of the Company’s share of copper,
produced from the Javhlant mining licence.
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 $1.10 per pound of copper (subject to inflation
adjustments). To the extent that the prevailing market price is greater than the amount of the cash payment,
the difference between the two will be credited against the Deposit (the net amount of the Deposit being the
"Unearned Balance").
152
Year Ended December 31, 2014Year Ended December 31, 2013Year Ended December 31, 2012US7,066,997$ 3,940,264$ 5,857,999$ Mongolia1,672,341 1,355,493 1,964,883 Other315,549 807,235 411,472 Total all locations9,054,887$ 6,102,992$ 8,234,354$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
8.
SANDSTORM FINANCING ARRANGEMENT (cont’d...)
In the event of a partial expropriation of the Company’s economic interest, contractually or otherwise, in
the Joint Venture Property, which is not reversed during the abeyance period provided for in the equity
participation and funding agreement, the Company will be required to return a pro rata portion of the
Deposit (the amount of the repayment not to exceed the amount of the Unearned Balance) and the metal
credits that the Company is required to deliver will be reduced proportionately. In the event of a full
expropriation, the full amount of the Unearned Balance must be returned with interest.
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 Sandstorm.
In addition, the Company entered into an agreement with Sandstorm whereby the Company granted
Sandstorm a 0.4% NSR royalty over certain of the Ann Mason Project claims, including the claims
covering the Ann Mason and Blue Hill deposits, in return for the Sandstorm NSR Payment of $5 million
which was recorded as a recovery to acquisition costs.
The Company also completed a private placement with Sandstorm for gross proceeds of $9,722,897 during
the year ended December 31, 2013.
The transaction costs related to the Sandstorm financing arrangement incurred in 2013 were $936,926 for
consultancy and advisory fees, $192,203 for legal fees included in general and administration expenses and
$86,636 for share issuance costs.
9.
COMMON STOCK
Share issuances
In January 2012, the underwriters for the Company’s November 2011 marketed offering exercised their
over allotment option pursuant to which the Company issued 1,150,000 common shares at a price of
C$1.25 per share. Rio Tinto elected to exercise its pre-emptive rights and purchased an additional 170,455
shares at a price of C$1.25 per share. The total gross proceeds from the over allotment were $1,628,583.
Related share issuance costs were $108,058.
In January 2012, the Company issued 40,000 shares at a fair value of $52,293 to acquire certain claims
within or contiguous to the boundaries of its Ann Mason Project.
In June 2012, the Company issued 500,000 shares at a fair value of $326,483 to purchase a 100% interest in
the Lordsburg and Oak Grove properties.
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.
153
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
9.
COMMON STOCK (cont’d...)
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 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:
The number of stock options exercisable at December 31, 2014 was 13,779,000.
154
Number of OptionsWeighted Average Exercise Price (C$)Balance at December 31, 20119,135,500 2.16 Granted1,882,000 1.22 Expired(1,177,500)2.14 Forfeited(617,000)2.05 Balance at December 31, 20129,223,000 1.98 Granted7,560,000 0.47 Expired(2,379,500)1.80 Forfeited(3,000)1.25 Balance at December 31, 201314,400,500 1.22 Granted2,815,000 0.21 Expired(2,811,500)1.99 Forfeited(625,000)1.43 Balance at December 31, 201413,779,000 0.85
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
9.
COMMON STOCK (cont’d...)
Share options (cont’d...)
At December 31, 2014, the following stock options were outstanding:
The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the
Company’s closing stock price of C$0.21 per share as of December 31, 2014, which would have been
received by the option holders had all option holders exercised their options as of that date. The total
number of in-the-money options vested and exercisable as of December 31, 2014 was Nil. The total
intrinsic value of options exercised during the year ended December 31, 2014 was $Nil (December 31,
2013 - $Nil; December 31, 2012 - $Nil).
Stock-based compensation
2,815,000 stock options were granted during the year ended December 31, 2014. The fair value of stock
options granted during the year ended December 31, 2014 was $251,390 (December 31, 2013 - $1,421,371;
December 31, 2012 - $1,124,930). Stock-based compensation recognized during the year ended December
31, 2014 was $251,390 (December 31, 2013 - $1,422,297; December 31, 2012 - $1,207,878) which has
been recorded in the consolidated statements of operations and comprehensive loss as follows with
corresponding additional paid-in capital recorded in stockholders' equity:
155
Number of OptionsExercise Price (C$)Aggregate Intrinsic Value (C$) Expiry DateNumber of Options ExercisableAggregate Intrinsic Value (C$) 300,000 2.34 - September 22, 2015300,000 - 1,172,500 2.86 - November 22, 20151,172,500 - 200,000 3.47 - January 4, 2016200,000 - 125,000 2.94 - March 8, 2016125,000 - 150,000 2.05 - July 7, 2016150,000 - 100,000 2.23 - July 15, 2016100,000 - 1,561,500 1.25 - January 6, 20171,561,500 - 100,000 0.73 - June 18, 2017100,000 - 4,680,000 0.56 - March 15, 20184,680,000 - 50,000 0.32 - April 9, 201850,000 - 150,000 0.34 - June 27, 2018150,000 - 2,375,000 0.30 - December 19, 20182,375,000 - 2,815,000 0.21 - December 22, 20192,815,000 - 13,779,000 -$ 13,779,000 -$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
9.
COMMON STOCK (cont’d...)
Stock-based compensation (cont’d...)
The following weighted-average assumptions were used for the Black-Scholes valuation of stock options
granted:
10.
SEGMENT INFORMATION
The Company operates in one business segment being the exploration of mineral property interests.
Geographic information is as follows:
156
Year Ended December 31, 2014Year Ended December 31, 2013Year Ended December 31, 2012Exploration35,893$ 294,676$ 267,452$ General and administration 215,497 1,127,621 940,426 251,390$ 1,422,297$ 1,207,878$ December 31, 2014December 31, 2013December 31, 2012Risk-free interest rate1.25%1.30%1.13%Expected life of options (years)4.3 4.3 4.9 Annualized volatility65%75%73%Dividend rate0.00%0.00%0.00%Fair value per option$0.09$0.19$0.60December 31, 2014December 31, 2013Identifiable assets USA46,949,474$ 49,405,542$ Canada31,274,058 45,822,245 Australia897,181 1,642,736 Mongolia533,386 504,408 Other36,399 20,174 79,690,498$ 97,395,105$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
11.
INCOME TAXES
A reconciliation of income taxes at statutory rates with the reported taxes is as follows:
157
Year Ended December 31, 2014Year Ended December 31, 2013Year Ended December 31, 2012Loss for the year before income taxes(12,725,835)$ (13,484,781)$ (14,866,359)$ Statutory rate26.00%25.75%25.00%Expected income tax recovery(3,308,717) (3,472,331) (3,716,590) Permanent differences and other1,645,947 (78,811) 270,521 Difference in foreign tax rates and enacted tax rates1,011,166 (366,039) (577,544) Effect of dissolution of subsidiaries(4,065,731) - - Change in valuation allowance660,688 1,611,239 4,353,383 Withholding taxes- 243,186 - Total income tax expense (recovery)(4,056,647)$ (2,062,756)$ 329,770$ Current income tax expense (recovery)(123,255)$ 319,112$ -$ Deferred income tax expense (recovery)(3,933,392) (2,381,868) 329,770 Total income taxes(4,056,647)$ (2,062,756)$ 329,770$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
11.
INCOME TAXES (cont’d...)
The significant components of the Company’s deferred income tax assets and liabilities are as follows:
The Company has available for deduction against future taxable income non-capital losses of
approximately $36,340,000 (2013: $34,720,000) in Canada, $690,000 (2013: $710,000) in China,
$7,160,000 (2013: $7,770,000) in Mongolia, $23,260,000 (2013: $26,270,000) in the United States of
America, $Nil (2013: $580,000) in Australia and $520,000 (2013: $410,000) in Peru. These losses, if not
utilized, will expire through 2033. Subject to certain restrictions, the Company also has foreign resource
expenditures available to reduce taxable income in future years. The Company has recognized $7,369,667
of deferred tax benefits arising as a result of these losses, resource expenditures, equipment, share issue and
legals costs in these financial statements.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and
penalties in operating expenses. As of December 31, 2014, there was no accrued interest or accrued
penalties.
The Company files income tax returns in Canada and several foreign jurisdictions. The Company’s
Canadian income tax returns from 2008 to 2014 are open. For other foreign jurisdictions, including
Mongolia and the U.S., all years remain open.
158
Year Ended December 31, 2014Year Ended December 31, 2013Deferred income tax assets:Non-capital loss carry forward19,506,412$ 20,423,498$ Resource expenditures7,259,556 9,278,934 Equipment152,063 144,776 Share issue and legal costs70,341 149,596 Other5,015,648 349,379 32,004,020 30,346,183 Valuation allowance(24,634,353) (23,973,665) Deferred income tax assets7,369,667$ 6,372,518$ Deferred income tax liabilities:Foreign exchange on loan(1,441,120)$ -$ Mineral property interests(9,335,671) (13,713,034) Deferred income tax liabilities(10,776,791)$ (13,713,034)$ Net deferred income tax liabilities(3,407,124)$ (7,340,516)$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(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, 2014, the Company had Level 1 financial instruments, consisting of cash and cash
equivalents, with a fair value of $33,517,096.
13.
DISCLOSURES REGARDING FINANCIAL INSTRUMENTS
The Company's financial instruments generally consist of cash and cash equivalents, receivables, deposits,
accounts payable and accrued liabilities and loans payable. It is management's opinion that the Company is
not exposed to significant interest or credit risks arising from these financial instruments. The fair value of
these financial instruments approximates their carrying values.
The Company is exposed to currency risk by incurring certain expenditures in currencies other than the
Canadian dollar. In addition, as certain of the Company’s consolidated subsidiaries’ functional currency is
the United States dollar, the Company is exposed to foreign currency translation risk. The Company does
not use derivative instruments to reduce this currency risk.
14.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (OCI)
159
Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012 Accumulated OCI, beginning of period:Currency translation adjustment465,615$ 3,253,019$ 1,901,351$ Other comprehensive income (loss) for the period:Currency translation adjustments(3,315,737)$ (2,787,404)$ 1,351,668$ Accumulated OCI, end of period:Currency translation adjustment(2,850,122)$ 465,615$ 3,253,019$
ENTRÉE GOLD INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014
(Expressed in United States dollars)
15.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
The significant non-cash transactions affecting cash flows from operating, financing and investing activities
for the year ended December 31, 2014 consisted of the issuance of 250,000 common shares (December 31,
2013 – Nil; December 31, 2012 - 540,000) in payment of mineral property acquisitions valued at $73,618
(December 31, 2013 - $Nil; December 31, 2012 - $378,776) which have been capitalized as mineral
property interests.
There were no other significant non-cash transactions during the years ended December 31, 2013 and 2014
affecting cash flows from financing and investing activities, except for the funding by OTLLC of the
Company’s investment requirements for the Entrée-OTLLC Joint Venture of $1,012,156 during the year
ended December 31, 2012.
16.
COMMITMENTS AND CONTINGENCIES
The Company is committed to make lease payments for the rental of office space as follows:
2015
2016
2017
$ 283,325
198,006
81,690
$ 563,021
The Company incurred lease expense of $399,906 (December 31, 2013 – $393,707; December 31, 2012 -
$398,266) for the year ended December 31, 2014.
In the event of a partial expropriation of the Company’s economic interest, contractually or otherwise, in
the Joint Venture Property, which is not reversed during the abeyance period provided for in the equity
participation and funding agreement, the Company will be required to return a pro rata portion of the
Deposit (the amount of the repayment not to exceed the amount of the Unearned Balance) and the metal
credits that the Company is required to deliver will be reduced proportionately. In the event of a full
expropriation, the full amount of the Unearned Balance must be returned with interest.
17.
TRANSACTIONS WITH RELATED PARTIES
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 an executive officer of the Company. The transaction was
in the normal course of operations and was measured at the exchange amount, which represented the
amount of consideration established and agreed to by the related party. All services under the agreement
have been provided.
18.
SUBSEQUENT EVENTS
There were no subsequent events after December 31, 2014.
160
Item 19. Exhibits
Exhibit Number
Name
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
Certificate of Incorporation July 19, 1995 (incorporated by reference from our Registration Statement on
Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Memorandum of Incorporation dated July 13, 1995 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Articles of Incorporation dated July 13, 1995 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Form 19 - Special Resolution filed November 5, 1997 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Form 19 - Special Resolution filed February 5, 2001 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Certificate of Name Change dated February 5, 2001 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Form 19 - Special Resolution filed October 9, 2002 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Certificate of Name Change dated October 9, 2002 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Letter regarding continuation to Yukon Territory (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Certificate of Continuance (incorporated by reference from our Registration Statement on Form 10-SB
filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
1.11 Articles of Continuance (incorporated by reference from our Registration Statement on Form 10-SB
1.12
1.13
4.1
4.2
4.3
8.1
12.1
12.2
13.1
13.2
99.1
99.2
99.3
99.4
99.5
filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Bylaw No. 1 (incorporated by reference from our Registration Statement on Form 10-SB filed with the
SEC on October 12, 2004 (SEC File No.: 0-50982))
Certificate of Amendment dated June 16, 2004 (incorporated by reference from our Registration
Statement on Form 10-SB filed with the SEC on October 12, 2004 (SEC File No.: 0-50982))
Equity Participation and Earn-In Agreement dated October 15, 2004 between Entrée Gold Inc. and
Ivanhoe Mines Ltd. (incorporated by reference from our Registration Statement on Form 10-SB/A filed
with the SEC on December 10, 2004 (SEC File No.: 0-50982))
Amendment to Equity Participation and Earn-In Agreement dated November, 2004 Entrée Gold Inc. and
Ivanhoe Mines Ltd.
Equity Participation and Funding Agreement dated February 14, 2013 Entrée Gold Inc. and Sandstorm
Gold Ltd.
List of Subsidiaries
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a)
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)
Certificate of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
Certificate of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
Consent of Davidson & Company LLP, Chartered Accountants
Consent of AGP Mining Consultants Inc.
Consent of Bernie Peters
Consent of QG Pty Ltd
Consent of Robert Cann
161
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 annual report on its behalf.
SIGNATURES
Entrée Gold Inc.
By:
/s/ Gregory Crowe
Name:
Gregory Crowe
Title:
President & Chief Executive Officer
Date:
March 30, 2015
162