RE:Country Gent partial drill result announcement from 2022 Thanks, I have spent 20 years following this story and accumulating a foolishly large position (not with regard to upside potential but with regard to diversification and personal investment risk management).
Why Rio Tinto and OTLLC do not share geological data promptly is a question I can't answer. Perhaps because the JV Agreement agreed to be executed following completion of the Earn In expenditures has never been finalized and signed? A long deferred structure issue along with transfer of the mining licences covering the JV ground from ETG to OTLLC.
In 2009 ETG was not made an ancillary party to the Investment Agreement struck among the parties that was coincident with the incorporation and vesting of IVN's, Rio's and Mongolia's interests in OT into OTLLC. This notwithstanding an obligation in the Earn In (assumed by TRQ and OTLLC by assignment) to use best efforts to see ETG covered by a similar tax stability agreement.
The probable sticking points were twofold - first, Mongolia took a 34% interest in all of OT except ETG's carried JV interest (20% of the JV). Mongolia did pay for their 34%, the arrangement was kept opaque but it appears they accepted a sharehokder's loan for an amount equivalent to the carried book value to IVN of the project - ie. outplayed expenses, not FMV. That amount plus interest was later forgiven in 2022 in order to break the impasse of renominated terms for financing of OTLLC for the third(?) or fourth(?) renegotiation of the Amended and Restated Shareholder Agreement (ARSHA) that was demanded by Rio before they would commence the block cave undercut - in response to Mongolian threats to shut down the project as their initial buy-in, plus proportional development costs, plus compounding interest repayments from cashflow were going to defer their enjoyment of dividends for some time.
Back in 2009 two uncertainties appear to have arisen - first, valuation of ETG and the JV was difficult for geological reasons - the dipping ore body at HNE and faulting approximately 625mN of the JV line meant the defined resource (thus implied size and valuation of Lift 2 in particular) was truncated. A series of drill holes (series ETG 081) at about double the length into the JV ground - near 1300mN had been NR'd (Feb 1, 2006 ETG NR) and was interpreted as having intersected the top of the same ore body - due to minor copper gold mineralization intersected at that location down deep but particularly because of the same hanging wall stratigraphy of bedded rocks being intersected - ie it appeared placed at the correct position in the host layer cake of host rock to be a continuation of what was defined to be HNE to 625mN, but deeper as the whole massive ore body was dipping NorthEast along strike to about the limit of efficient deep drilling through granite that overlays the target ore body.
It is probable that ETG rejected any offer to contribute their retained 20% interest in HNE to OTLLC or some other structure to share 34% with Mongolia on the basis they had already contributed 80% of their interests and if such a sale/contribution was required to secure tax stability then it was an obligation upon IVN and their successors to absorb the cost out of their 80% JV interest reading the Earn In Agreement as a whole - ETG contributed 80% of what they had owned, and negotiated for retention of a tax-stabilized 20%. But there was a secondary problem that HNE could not be accurately valued because the extent and value of Lift 2 (and potentially many other targets in the JV lands) could not be valued with accuracy. The first valuation challenge was whether Lift 2 as or was not twice as large or larger - perhaps a "made up" controversy because between IP surveys and the limited drilling it's clear something extends beyond a fault zone that has currently defined a Norther end to the stated project resources - but a slightly displaced continuation has not been confirmed or disproved and the ETG 081 intersection that is consistent with a much larger high grade resource has not been incorporated into any valuation. But also, there are multiple other JV exploration targets of potential value.
Since 2006 the disputes with Mongolia have militated against continued exploration and value added while at times the project has been halted completely. It may also be the case that value added would have been avoided as just emboldening anti-foreign mining sentiment if OT was shown to be increasingly valuable beyond the already immense reserve values defined by 2006. So weirdly this large exploration area of potential additional mines, resources, targets was left with only very limited further exploration expenditures. As well, one has to recognize that the bar for value added has risen quite high for the practical reason that there are already decades of economic resources - either the mill and mining capacity must be increased to accelerate production size, or, higher value resources that could "jump the line" by being higher grade and accessible at an earlier date then the theoretical mining schedule would have to be found.
It has been an opinion of long time observers that Rio Tinto and Mongolia realize they could substantially increase the overall value and free cashflow from OT (and thus the net present value) by expanding the mill and accelerating development of HNE Lift 2 and/or Heruga, or some other target and resource yet to be "discovered" or revealed and defined. In the meantime the buyout of TRQ militated against adding value or giving any hint OT was anything but a completely defined resource with no further prospect of value added. The TRQ valuation certainly went down that way.
Now OTLLC through Rio Tinto's management is drilling to better define Lifts 1 and 2. These latest drill results do not address the big question for ETG - how much larger might Lift 2 be along strike? They infill and raise certainty allowing marginal addition of resources within or closely adjacent to the known ore body envelope. I think it is similar to twinning holes where you are drilling with a high degree of confidence about what you expect to intersect.
So all good, but not earth shattering. Possible upvalue to ETG remains from - proof of expansion of the Lift 2 resources by drilling further North; acceleration of the development and mining timetable of resources in the JV ground; discovery or reveal of additional mineable resources elsewhere in the JV - in particular any shallow high grade targets (postulated to exist proximate to the main string of deposits as early as 2002); and confirmation of ETG being made subject to a tax stability regime similar to that under the existing OTLLC IA. The proximate deposit potential,is intriguing for the reason that exploration plans in place for ETG over what was to become the JV were halted immediately in 2004 when the Earn Ian was struck, and never completed. The conspiracy theory view might be a shallow high grade precious metals deposit might have blown up all the political support for involvement of foreign miners, or foreign miners on the terms negotiated - because the capex and immediate cash flow potentials of a high grade open pit might have encouraged expropriation or more difficult terms in negotiations. Crazy? Everything about OT is unusual and exceptional to some degree. It's value and extent remains unknown and dynamic.
Postulate - ETG was well aware of significant value-added exploration and drilling potential but patiently waited as a compliant JV partner so as not to disturb delicate political negotiations. But continued deferrals finally led to an ultimatum or at least a backup that they would commence arbitration to compel the JV to operate more normally (exploration committee, sharing of data, drilling plans, alteration of mining plans) . In the meantime Rio Tinto had to stop deferring its expenditure to buy the public float of TRQ and double its equity exposure. Which it finally did, after what looked like a long campaign of good cop/bad cop in concert with Mongolia which suited both those parties quite nicely - and in my view blocked the public TRQ minority shareholders from any of the potential value added at OT in valuations used to justify the fairness of their TO Bid. Apart from acceleration of the mining schedule - the size of Lift 2 was never mentioned. The inherent prospective exploration value of the JV ground ignored. And TD abank provided what to me is an outrageously low long term copper price in their fairness opinion of $3.50 - a price we have been above for some time with very good analyst prospects for copper shortages globally and energy transition demands to create a supply deficit and substantially higher prices through the most important/impactful mining years to add value to a NPV calculation of the value of OT and of course TRQ or what was TRQ.
Global answer to securing 34% of ETG to Mongolia, attaining coverage by a tax stability regime of the ETG interests? Have OTLLC buy ETG and collapse its OT assets into their existing structure. The ONLY matter to be negotiated would be price. It would have to be significantly higher than the existing trading price, but recognize that the trading float of ETG is exceedingly small in relation to all issued shares as most of the shares are closely held by Rio, HCU, management, a small but determined and stable minority shareholder group who do not sell or trade.
In fact, again speculative, but the view of many with experience and long examination of the trading is that the share price is being manipulated by high frequency trading of a very small float among parties intending to artificially steer and hold the market trading price to a targetted level. A suppressed ETG price assists in the completion of the trailing TRQ valuation dispute, as well as leaves flexibility and greater probability of support for a downstream price target if a buyout TO of ETG could be negotiated.
The only fly in that ointment is the current low price vs the projected free cashflows make ETG an attractive hold that does not free up any of the trading float. But that may be of little concern to the numbers of committed long hold shareholders including management and HCU who foresee a significant premium to current market resolution that will wind up ETG for cash ... or potentially Rio Tinto paper (unlikely but possible). Best case scenario is a cooperative stream of good news NRs used to slowly lift the SP followed by a healthy multiple raise offer to buy out. In the meantime what an easy hold - at the current market cap of around $270 million CDN you have to wonder why ETG even exists as a seperate listing and ownership vehicle, Double the price to $2.60 and a market cap somewhere closer to $600 million CDN you might see some white knuckles and increased sales from,long term shareholders who then find a continued hold and the multiple uncertainties less attractive, or are willing to take profits and reduce their exposure.
Look at the most recent updated ETG corporate presentation - in particular the NPV calculations modelled towards the end. Note the "under market" metals prices used. Note the limited size of Lift 2 and the pointed addition of a note regarding advancement of Lift 2 (of any size) as an "opportunity".
It may sound outlandishly high vs current market but a buyout towards $3 to $3.50:USD per share does not seem beyond concept in light of all the circumstances and undeniable potential value added coming at OT.
Pardon my length. When you get people say to me "TMI" or "TLTR" I have on occasion pointed out to them that some facts and data can8t be reduced to a short tweet. Gibbon's Decline and Fall of the Roman Empire was not a Reader's Digest condensation deal. Human affairs can be exceedingly complex and uncertain. No question here there is much at play, many parties, many moving parts.
Thus nothing is certain. Make your own judgement. Mine is very bullish and has been for the greater part of 20 years except a few times when the hostility of Mongolian political unrest and uncertainty threatened to derail OT and ETG.
"FMCDH" has been my motto from way back when Charlton Heston was still alive and brandishing his stupid musket over his head at NRA meetings. An intentionally sarcastic and ironic war cry for the minority shareholders who have been much abused and kept in the dark.
FMCDH!!! 20 years and ...
cg