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DAILY NEWS Oct 24, 2012 5:59 PM - 0 comments

PEA lifts Entrée Gold, but Mongolian risk remains

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Entrée Gold’s (ETG-T) shares rebounded after outlining encouraging economics at the Ann Manson copper-molybdenum porphyry deposit in Nevada, following a recent slump that the company attributed mostly to “current political uncertainty in Mongolia,” where it holds a carried interest on part of the Oyu Tolgoi mining complex.    

The Vancouver-based firm jumped 22% on results of a positive preliminary economic assessment (PEA) at Ann Manson, virtually erasing a decline that came on the heels of Rio Tinto (RIO-T, RIO-N), Turquoise Hill Resources (TRQ-T, TRQ-N) and Oyu Tolgoi LLC, Entrée’s joint-venture partner, rejecting the Mongolian government’s plea to revise the Investment Agreement for the Oyu Tolgoi copper-gold deposit on Oct. 15.

The government was aiming to bump up its current 34%-stake in the project to 50%. However, the companies dismissed the request, noting that the current agreement “provides a stable legal framework and is a legally-binding document,” said Entrée.   

Despite concerns mounting over Mongolia’s investment climate, with authorities looking to further capitalize on its resources, Entrée said underground production from its joint-venture grounds at the Oyu Tolgoi mining complex should kick off in 2016.

Meanwhile in mining-friendly Nevada, the junior plans to move the Ann Manson project towards prefeasibility following the positive PEA.

The study, released on Oct. 24, envisages Ann Manson as a 100,000-tonne-per-day open-pit operation, using a conventional sulphide flotation mill to produce 5.14 billion lbs. copper and 36.4 million lbs. molybdenum over an estimated 24-year life.

Annual production over the life of mine is estimated at 214 million lbs. copper at total cash costs of US$1.46 per lb. copper sold, net of by-product credits. The price tag to get Ann Manson up and running is US$1.28 billion, which includes a US$127-million contingency.

The base-case scenario estimates Ann Manson has a pre-tax net present value of US$1.11 billion, internal rate of return of 14.8% and a payback period of 5.6 years, using a 7.5% discount and long-term prices of US$3 per lb. copper, US$13.50 per lb. moly, US$1,200 per oz. gold and US$22 per oz. silver.

Entrée says it intends to drill the deposit to potentially extend mineralization and lower the waste-to-mineralization strip ratio of 2.16-to-1 to improve economics. It is also working on updating the resources for Ann Manson and the nearby oxide-copper target, Blue Hill.

On the PEA news, the stock gained 9¢ to close at 50¢.



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