Entrée Resources: A Royal Premium Awaits
Edison | Apr 27, 2018 02:00AM ET
Entree Resources Ltd (NYSE:EGI) carried interest in the JV (EJV) in part of the Oyu Tolgoi (OT) copper-gold mine in Mongolia confers the characteristics of a royalty company with the benefits of a producer. The key advantage is that Entrée’s JV partner, OTLLC, limits counterparty risk by affording Entrée a favourable debt account (c 5.2% interest pa dependent on RBC rates) to cover JV obligations.
As Entrée’s share of OT production ramps up, debt repayments are made from 90% of attributable cash flows with excess amounts paid back to Entrée. This debt-carry mechanism effectively doubles the return on investment on Entrée’s shares relative to the IRR based on valuing the 2018 PEA outcome as a pre-development project level royalty.
No other royalty company has this loan account mechanism positively affecting its cash flows. Entrée has also released its full NI43-101 technical report on the 2018 Reserve Case for developing Hugo North Extension (HNE) Lift 1, as well as a fully costed PEA-level scenario including HNE Lift 2 and its more distal project, Heruga (which is also within the area of the Entrée JV agreement) into the overall mine plan with HNE Lift 1.
Oyu Tolgoi underground development continues
OT’s development during 2017 focused on underground lateral developing; sinking of shafts 2 and 5, support infrastructure and haulage systems. Five development crews operated throughout the year, and the commissioning of a 3,500tpd development crusher was completed in Q317. Turquoise Hill plans for first draw bell on OTLLC’s Oyu Tolgoi mining licence in 2020 and sustainable production in 2021.
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