PROPERTIES

Hugo North Extension

Hugo North Extension is one of the world’s richest porphyry copper-gold deposits.  It is within the Entrée-Ivanhoe joint venture area and is part of the Oyu Tolgoi mining complex currently being developed by Oyu Tolgoi LLC (a subsidiary of Ivanhoe Mines).  Hugo North Extension is associated with Devonian quartz monzodiorite intrusions and porphyritic augite basalt, concealed beneath a deformed sequence of Upper Devonian and Lower Carboniferous sedimentary and volcanic rocks.  Hugo North Extension is the northern continuation of the Hugo North deposit on Oyu Tolgoi LLC’s wholly-owned adjacent Oyu Tolgoi Property. The deposit  is part of a much larger regional porphyry corridor, the Oyu Tolgoi Trend, which extends over 12 km and includes Entrée-Ivanhoe’s Heruga deposit.  The Hugo North Extension remains open to the north and in most sections, at depth. 

Porphyry-style mineralization at Hugo North and other Oyu Tolgoi Deposits is genetically linked to Late Devonian quartz monzodiorite to monzodiorite intrusions, which form the most voluminous intrusions in the deposit area.  These intrusions are texturally and compositionally varied, and several distinct phases can be distinguished within the deposits.  They are typically phenocryst-crowded, with >40% plagioclase phenocrysts up to 5 mm long, and 10-15% biotite and hornblende.  Quartz monzodiorite contacts are irregular, but overall show a preferred easterly dip, subparallel to stratification in the enclosing rocks. 

The quartz monzodiorite is contemporaneous with alteration and mineralization, and at least three varieties are distinguished on the basis of alteration characteristics and position within the deposit.  Three such varieties are: 1) an intensely quartz-veined phase with approximately 90% veining; 2) a gold-rich phase, restricted to the western part of the main intrusion in the Hugo North Extension Deposit and 3) the main intrusive body, which typically has lower vein density and lower copper and gold grades.  Cross-cutting relationships between the different phases are ambiguous, and it is uncertain whether they represent distinct intrusive events or simply variations in alteration intensity related to position within the deposit.

Alteration through the mineralized quartz monzodiorite is dominated by late muscovite overprinting.  Advanced argillic is common but more so in the augite basalt and overlying dacite tuff with less in the quartz monzodiorite.  Muscovite likely predates advanced argillic alteration. 

The deposit consists of a high-grade, quartz vein-rich (90%) core which typically averages over 2% Cu enclosed in a lower-grade marginal zone with lesser quartz-veining and alteration.  The high-grade core is mainly within quartz monzodiorite but in the southernmost part of the extension it crosses into adjacent augite basalt (unit DA1).  Elevated gold grades occur within the up-dip western portion of this core and within a steeply-dipping lower zone with less veining that cuts through the western part of the quartz monzodiorite and is characterized by red feldspar alteration (albite alteration with fine hematite).  A peripheral low grade zone to the east is contained mainly in augite basalt (unit DA1) and to a lesser extent in dacite tuff (unit DA2b).  Alteration intensity drops abruptly at the upper contact of this package. 

Bornite is the dominant copper mineral in the highest grade parts of the deposit that average around 3% to 5% Cu. It is commonly intergrown with lesser chalcopyrite. This is zoned outward to high-grade chalcopyrite dominant mineralization that averages around 2% Cu.  At grades of <1% Cu, chalcopyrite ± enargite, tennantite, bornite occurs with rare chalcocite, pyrite and covellite.

The high-grade zone is bounded on the west by the West Bat fault system which juxtaposes it against either unmineralized, stratigraphically higher rocks or more weakly mineralized quartz monzodiorite bodies.  The West Bat Fault is part of a district scale structure that extends south through Oyu Tolgoi and to Heruga where it is known as West Bor Tolgoi Fault. The eastern limit of the high-grade zone coincides with either an intrusive or faulted eastern contact of the quartz monzodiorite.  Another significant regional structure is the Contact Fault that occurs between the contact of the dacite tuff (unit DA2) and the unmineralized overlying cover sequence.  It is a bedding parallel fault the marks the upper limit of the strong alteration associated with the Hugo North Extension deposit. 

The Probable Mineral Reserve and Mineral Resources for Hugo North Extension are summarized in the tables below.  Entrée holds a 20% carried interest to production in these resources through a joint venture with Oyu Tolgoi LLC, a subsidiary of Ivanhoe Mines.  Hugo North Extension reserves have the highest value of all the Oyu Tolgoi deposits, measured as net smelter return (US$55.57/tonne). 

Notes:  Metal prices used for calculating the Hugo North Underground NSR are copper US$1.50/lb, gold US$640/oz, and silver US$10.50/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 low grade Indicated and Inferred material assigned zero grade and treated as dilution.  Only indicated resources were used to report probable reserves. Entrée– Ivanhoe Mines Joint Venture includes a portion of the Shivee Tolgoi licence and the Javhlant licence. The Shivee Tolgoi licence is held by Entrée Gold and is 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.

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.  Production at Hugo North Extension is included in the two main mining scenarios presented by the IDP10. 

The Reserve Case uses Proven and Probable mineral reserves of the deposits including those of Hugo North Extension.  In this scenario, production commencement (Year 1) is anticipated to be 2013 at the southern Oyu open pit and development mining of Hugo North Extension Lift 1 would begin Year 4 with main production commencing in Year 11.  Peak production from Hugo North Extension is in Year 14 with an estimated production of 6.8 million tonnes at 1.82% copper and 0.69 g/t gold. In the Reserve Case, production from Lift 1 at Hugo North Extension is estimated to last until Year 18. Total capital costs for development of Hugo North underground block cave are estimated at $1.1 billion – a portion of which will be the responsibility of Entrée. Entrée is carried to production under the terms of the Entrée-Ivanhoe Mines joint venture and capital costs need only be repaid from 90% of production revenues.  The NPV(8%) of the Entrée share of Lift 1 at Hugo North Extension is estimated at US$79 million (using US$2.00/lb copper,US$850/oz gold and US$13.50/oz silver), while at recent metal prices of US$3.13/lb copper and US$1208/oz gold Entrée’s production has an NPV(8%) of US$134 million (silver and molybdenum prices unchanged.)

The LOM Sensitivity Case uses all classifications of current mineral resources at Oyu Tolgoi including the Lift 1 mineral reserves plus Lift 2 indicated and inferred mineral resources at Hugo North Extension.  The LOM Sensitivity Case is a preliminary assessment that does not have as high a level of certainty as the Reserve Case. 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 the LOM Sensitivity Case is implemented, production from Hugo North Extension Lift 2 would commence around Year 15 and reach a potential maximum production around Year 22 of approximately 14.8 million tonnes/year comprising 500 million pounds of copper, 200,000 ounces of gold and 1.75 million ounces of silver. Production from Hugo North Extension Lift 2 is estimated to continue until year 32 and total 122 million tonnes averaging 1.42% copper and 0.44 g/t gold.

More Information on the Integrated Development Plan (link to NR)