Entree Resources Ltd (ETG)

[JohnCM]

I own shares in Sandstorm ...

Sandstorm Agreement

In February 2013, Entrée entered into an equity participation and funding agreement with Sandstorm Gold Ltd. (“Sandstorm”) that provided an upfront deposit (the "Deposit") from Sandstorm of $40 million. Entrée will use future payments that it receives from its mineral property interests, including from the Joint Venture Property, to purchase and deliver metal credits to Sandstorm, in amounts that are indexed to Entrée’s share of gold, silver and copper production from the Joint Venture Property as follows:

25.7% of Entrée’s share of gold and silver, and 2.5% of Entrée's share of copper, produced from the portion of the Shivee Tolgoi mining licence included in the Joint Venture Property; and

33.8% of Entrée’s share of gold and silver, and 2.5% of Entrée’s share of copper, produced from the Javhlant mining licence.
In addition to the Deposit, upon delivery of the metal credits Sandstorm will make a cash payment to Entrée equal to the lesser of the prevailing market price and $220 per ounce of gold, $5 per ounce of silver and $0.50 per pound of copper (subject to inflation adjustments). After approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the entire Joint Venture Property, the cash payment will increase to the lesser of the prevailing market price and $500 per ounce of gold, $10 per ounce of silver and $1.10 per pound of copper (subject to inflation adjustments). To the extent that the prevailing market price is greater than the amount of the cash payment, the difference between the two will be credited against the Deposit (the net amount of the Deposit being the "Unearned Balance").

In the event of a partial expropriation of Entrée’s interest in the Joint Venture Property, which is not reversed during the abeyance period provided for in the equity participation and funding agreement, Entrée will be required to return a pro rata portion of the Deposit (the amount of the repayment not to exceed the amount of the Unearned Balance) and the metal credits that Entrée is required to deliver will be reduced proportionately. In the event of a full expropriation, the full amount of the Unearned Balance must be returned with interest.

This arrangement does not require the delivery of actual metal, and Entrée may use revenue from any of its assets to purchase the requisite amount of metal credits.