Entree Resources reports Q3 operating loss $0.7M vs. $2.7M last year

Entree and OTLLC have been operating under the Entree/Oyu Tolgoi JVA, which is appended to the amended 2004 Equity Participation and Earn-in Agreement, since OTLLC completed its earn-in obligations in 2008. Under the terms of the Entree/Oyu Tolgoi JVA, the Manager is required to hold all assets including the Shivee Tolgoi and Javhlant mining licences. The Company currently is registered in Mongolia as the 100% ultimate holder of the licences. Entree’s primary objective is to effect the transfer of the Shivee Tolgoi and Javhlant mining licences from the Company’s Mongolian subsidiary to OTLLC, and confirm the respective rights and obligations of all Entree/Oyu Tolgoi JV stakeholders beyond the exploration stage. The Company believes transfer of the licences to OTLLC, as Manager and owner of an 80% or 70% participating interest in the Entree/Oyu Tolgoi JV, is necessary to maximize operational efficiencies and provide certainty with respect to taxes and royalties. The Company has been engaged in discussions with Rio Tinto and OTLLC regarding conversion of the existing Entree/Oyu Tolgoi JVA to an alternative agreement of equivalent economic value to govern their relationship during the development and mining stages. The transfer of the Shivee Tolgoi and Javhlant mining licences to OTLLC, the treatment of taxes payable in Mongolia in connection with such licence transfers, and ensuring there is an effective mechanism for Entree to fulfil any obligation under Mongolian law to share with the State up to 34% of Entree’s economic benefit have been key points in the discussions. While the parties have identified a potential pathway forward, any definitive alternative agreement(s) reached between the Company and OTLLC requires the approval of the OTLLC board. Of the nine members of the OTLLC board, six are appointed by Rio Tinto and three are appointed by Erdenes Oyu Tolgoi LLC (the State-owned company that holds a 34% interest in OTLLC). Given the importance of the Oyu Tolgoi project to the people of Mongolia, the Company understands OTLLC wants to ensure all board members are supportive before proceeding. If the Company’s primary objective is not achieved in the near term, either in conjunction with finalization, execution, and closing of definitive alternative agreement(s) with OTLLC or enforcement of certain provisions of the Earn-in Agreement and Entree/Oyu Tolgoi JVA pursuant to binding arbitration proceedings, future lateral development work on the Entree/Oyu Tolgoi JV Property could be delayed. As previously disclosed, in 2022, with Lift 1 Panel 0 underground development work progressing, the Company’s ability to effect transfer of the licences and achieve contractual certainty through negotiation uncertain, and the Company unable to advance discussions with the Government of Mongolia in a meaningful way without first confirming its underlying contractual rights and obligations vis-a-vis OTLLC, the Company’s board of directors authorized and approved the commencement of binding arbitration proceedings to seek declarations and orders for specific performance relating to certain provisions of the Earn-in Agreement and the Entree/Oyu Tolgoi JVA. The arbitration was commenced on May 26, 2022 in Vancouver, British Columbia under the International Commercial Arbitration Act. A three-member Tribunal was appointed and the evidentiary hearing took place in Vancouver on April 8 and 9, 2024. Closing submissions were heard in Toronto on July 10, 2024. To date, no decision has been released and the Company does not know when a decision will be forthcoming. Further, the Company does not know if the Tribunal will release a partial or final decision. If a partial decision is released further submissions and hearings may be necessary. In the third quarter 2024 the Company met with Mongolian officials to reaffirm Entree’s commitment to fulfil any obligation it has under applicable Mongolian law to share with the State of Mongolia up to 34% of the economic benefit derived by the Company from its interest in the Entree/Oyu Tolgoi JV Property. The Minerals Law of Mongolia provides the State may share in up to 34% of the economic benefit derived from exploitation of a mineral deposit of strategic importance where proven reserves were determined through funding sources other than the State budget. The Hugo North Extension copper-gold deposit on the Shivee Tolgoi mining licence and the Heruga copper-gold-molybdenum deposit on the Javhlant mining licence are part of the Oyu Tolgoi group deposits. The Oyu Tolgoi group deposits were classified a Strategic Deposit by Resolution No. 27 dated February 6, 2007, adopted by the Parliament of Mongolia.