PROPERTIES

Heruga

Heruga is a world class, gold-rich copper porphyry deposit with elevated molybdenum content that lies toward the south end of the Oyu Tolgoi Trend, a regional porphyry corridor extending over 12 km in the south Gobi desert of Mongolia.  The Heruga deposit is within the Entrée-Ivanhoe joint venture area and is part of the Oyu Tolgoi mining complex currently being developed by Ivanhoe.  Heruga was discovered in 2007 from drilling of a deep IP chargeability anomaly.

The copper-gold-molybdenum mineralization at Heruga is primarily hosted in Devonian augite basalts (DA1b) and less commonly in Devonian quartz monzodiorite intrusions.  Quartz monzodiorite stocks and dykes intrude the mineralized units and may be contemporaneous with mineralization.  The deposit is cut by several north-northeast oriented near-vertical post-mineral normal faults, which include the West Bor Tolgoi and Bor Tolgoi.  Volcaniclastic strata are structurally juxtaposed over the Heruga deposit along a major, southeast-dipping fault zone.  This fault (Contact Fault) ranges from a 30 metres wide cataclastic zone to a narrow mylonite and places several hundred metres of post-mineral Devonian stratigraphy over the deposit. 

The Heruga deposit is zoned in terms of mineralization with a molybdenum-rich zone at higher elevation and an increasing gold-rich mineralization at depth.  Copper-rich mineralization occurs at intermediate levels and overlaps both the molybdenum-rich and gold-rich zones.  The vertical extent of the overall mineralization is close to 800m with overlapping zones of molybdenum (300 to 400m), copper (600m) and gold (450m).  The mineralization is offset by north-northeast post-mineral faults and remains open down dip to the east of the east bloc.  On the western bloc, further definition of the deposit at depth is required as well as on the high grade gold core.

There is a rough spatial correlation between metal and alteration zonation and the two may be genetically linked.  Generally speaking at deeper levels mineralization consists of chalcopyrite and pyrite in veins and disseminated within biotite-chlorite-albite-actinolite altered basalt or sericite-albite altered quartz monzodiorite. Selvages of salmon pink albite alteration occur with chalcopyrite associated with higher grade mineralization in both basalt and quartz monzodiorite. The higher levels of the orebody are overprinted by strong quartz-sericite-tourmaline-pyrite alteration where mineralization consists of disseminated and vein controlled pyrite, chalcopyrite and molybdenite.  Gold may correlate with strong biotite alteration at the deeper levels of the deposit.

Mineralized veins have a much lower density at Heruga than in the more northerly Southern Oyu and Hugo Dummett deposits.  High grade copper and gold intersections show a strong spatial association with contacts of the mineralized quartz monzodiorite porphyry intrusion in the southern part of the deposit, occurring both within the outer portion of the intrusion and in adjacent enclosing basaltic country rock.  There is no oxide zone at Heruga, nor is there any high-sulphidation style mineralization known to date.

The Mineral Resources for the Heruga Deposit are summarized in the table below.  Entrée holds a 20% carried interest to production in these mineral resources through a joint venture with Oyu Tolgoi LLC, a subsidiary of Ivanhoe Mines. 

Notes: Copper Equivalent (CuEq) has been calculated using assumed metal prices of US$1.35/pound for copper, US$650/ounce for gold, and US$10.50 for molybdenum;. The equivalence formula was calculated assuming that gold was 91% of copper recovery. CuEq was calculated using the formula: CuEq = %Cu + ((g/t Au*18.98)+(Mo*0.01586))/29.76.  The contained copper, gold, copper and molybdenum in the tables has not been adjusted for metallurgical recovery.  The 0.6% CuEq cut-off is highlighted as the base case resource for underground bulk mining.  The mineral reserves are not additive to the mineral resources.  Mineral resources that are not mineral reserves do not have demonstrated economic viability.  Entrée– Ivanhoe Mines Joint Venture includes a portion of the Shivee Tolgoi licence and the Javhlant licence. The Shivee Tolgoi and Javhlant JV licences are held by Entrée Gold and are planned to be operated by Oyu Tolgoi LLC. Oyu Tolgoi LLC will receive 80% and Entrée Gold will receive 20% of cash flows after capital and operating costs. 

The 2010 Integrated Development Plan (“IDP10”) for the Oyu Tolgoi mining complex was announced by Ivanhoe in May 2010.  IDP10 presents two main mining scenarios: the Reserve Case and the Life of Mine Sensitivity Case (“LOM Sensitivity Case”).  Development and production at Heruga is included in the Life of Mine Sensitivity Case scenario, which uses all classifications of current mineral resources at Oyu Tolgoi. 

The LOM Sensitivity Case is a preliminary assessment that includes an economic analysis based, in part, on inferred mineral resources. It does not have as high a level of certainty as the Reserve Case which uses mineral reserves. Inferred mineral resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorized as mineral reserves, and there is no certainty that the LOM Sensitivity Case will be realized.

If this LOM Sensitivity Case is implemented, production from Heruga would commence around Year 27, with maximum production reached around year 54 (Production commencement for all deposits, Year 1, is anticipated to be 2013).  In Year 54, Heruga is estimated to produce around 24.5 million tonnes to yield approximately 150 million pounds of copper, 450,000 ounces of gold, 900,000 ounces of silver and 3.5 million pounds of molybdenum. Molybdenum production is estimate to peak around Year 56 at approximately 7.25 million pounds.  Production at Heruga (assuming no additional economic mineralization is outlined) is projected to continue until Year 59 and to total 615 million tonnes averaging 0.41% copper, 0.46 g/t gold and 127 ppm molybdenum.

In addition to the two main mining scenarios, IDP10 presents two alternative mine production plans for the development and mining of the deposits along the Oyu Tolgoi mineralized trend including the Southern Oyu, Hugo South and Hugo North, Hugo North Extension and Heruga deposits. Due to the nature of the deposits associated with Oyu Tolgoi, the project operators have the flexibility to consider several options for maximizing the deposits for the benefit of their stakeholders.

One scenario (“Alternative Production Case A”) examined the operation of Hugo South as an open pit, along with a 25,000 tpd underground operation at Heruga.  This option could increase mine production levels to 213,000 tpd.  Production at Heruga could commence around Year 10. 

The second alternative (“Alternative Production Case B”) retained Heruga as a 75,000 tpd operation (as was proposed in the LOM Sensitivity Case scenario) resulting in production levels of 265,000 tpd.  Under this scenario, the production from Heruga would be moved forward to around Year 7. 

Moving Heruga production forward would have a significant impact on the economics of the deposit. No economic parameters are provided for the indicative options described above, as under NI 43-101 guidelines inferred resources are too speculative to have economic considerations applied to them that would allow categorization as mineral reserves, and as such there is no certainty that the preliminary assessment will be realized. 

More information on the 2010 Integrated Development Plan (link to NR)