Entre sitting pretty in OT’s shadow

SOUTH GOBI DESERT, MONGOLIA — “Closeology” can sometimes be just as valuable as geology, says Lindsay Bottomer, vice-president of business development for Entrée Gold (ETG-T, EGI-X, EKA-F), a Canadian junior explorer that has tossed its fair share of darts around a mineral bull’s eye in Mongolia.

“The basic science is: go where you know there are some good indications already,” says Bottomer.

In 2002 in the remote South Gobi region, less than 100 km from the Chinese border, Entrée made the pivotal move of picking up exploration licenses for properties that just happen to surround what is now Ivanhoe Mines’ (IVN-T, IVN-N) huge Oyu Tolgoi project (known as OT), the largest undeveloped gold-copper deposit in the world.

The efforts paid off handsomely: small-cap Entrée is sitting on some rich extensions to the OT orebodies, such as the Hugo North Extension and the Heruga deposit to the south.

Furthermore, the company will have a chance to take part in the region’s mineral development through an investment agreement with two of its substantial shareholders: Ivanhoe and Rio Tinto (RTP-N, RIO-L). The whole capital cost to bring the OT mine to production in 2013 is estimated at US$7.3 billion.

And there’s more: Entrée has recently received a mining license for its 100%-owned Nomkhon Bohr coal deposit in Mongolia.

Any way you look at it, Entrée Gold has some valuable mineral real estate. The Hugo North Extension has 5.6 billion lbs. copper in the indicated category and Heruga has 17.4 billion lbs. copper (inferred) as well as gold and molybdenum.

And Entrée is not sitting on its laurels: it maintains an 80-person camp on its Shivee Tolgoi property where geologists have identified parallel geophysical and surface geochemical anomalies that warrant continued drilling. The company has spent $4 million in exploration on these targets so far.

Even after sensitive testing, there is no neon sign with the words, “drill here.”

Ivanhoe and BHP Billiton (BHP-N) (the original owner of the OT licenses) had mineralized outcrops that guided them in their exploration efforts, says Bottomer, who notes that Ivanhoe drilled 140 holes before it became convinced there were economic grades. “You still have to do a lot of work.”

While some of the other two dozen or so Canadian-based companies active in Mongolia, such as Khan Resources (KRI-T) (now in a legal dispute with the Mongolian nuclear agency), are finding the country a headache to operate in, so far Entrée executives have been relatively content with the situation.

“Mongolia is probably one of the better jurisdictions in all of Asia, with its elected parliamentary democracy, the rule of law, and access to the Supreme Court,” says Entrée president and CEO Greg Crowe. “It’s a young democracy but I think it works.”

Oftentimes a mineral discovery is a trade-off between large tonnage or high-grade ore, says Bottomer, but the OT deposit has both. “It’s pretty unusual, and the academics will have a field day trying to figure out why the mineralization is so concentrated. We don’t understand why,” he says.

The combined presence of both gold and copper makes a difference to investors too, says Bottomer. “The romance of gold is real. Copper as a base metal seems fairly boring even though it keeps the world’s economy going, but throw in some gold and people get more excited.” — The author is a freelance business reporter based in Toronto, and can be reached at susanintoronto@yahoo.com.