July

19,

1995

January

22,

2003.

May

27,

2005,

12

may

three

$13.4

December

31,

2016.

20%

50%

 

Equipment

 

Equipment, consisting of office, computer, field equipment and buildings, is recorded at cost less accumulated depreciation. Depreciation is recorded on a declining balance basis at rates ranging from to per annum.

 

Mineral property interests

 

Costs of exploration and costs of carrying and retaining unproven properties are expensed as incurred. The Company considers mineral rights to be tangible assets and accordingly, the Company capitalizes certain costs related to the acquisition of mineral rights.

 

Asset retirement obligation

 

The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets where the initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any significant asset retirement obligations.

 

Impairment of long-lived assets

 

Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the discounted carrying amount of the assets exceeds the fair value of the assets.

 

Stock-based compensation

 

The Company applies the fair value method of accounting for all stock option awards, whereby the Company recognizes a compensation expense for all stock options awarded to employees, officers and consultants based on the fair value of the options on the date of grant, which is determined using the Black Scholes option pricing model. The options are expensed over the vesting period of the options.

 

Financial instruments

 

The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the transferor's carrying amount or exchange amount.

 

Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.

 

The Company classifies its financial instruments as follows:

 

Cash and cash equivalents is classified as held for trading, and is measured at fair value using Level inputs. Receivables are classified as loans and receivables, and have a fair value approximating their carrying value, due to their short-term nature. The Company's other financial instruments, accounts payable, and loans payable are classified as other financial liabilities, and are measured at amortized cost.

 

Income taxes

 

The Company follows the asset and liability method of accounting for income taxes whereby deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period in which the change occurs. The amount of deferred income tax assets recognized is limited to the amount that is more likely than not to be realized.

 

Foreign currency translation

 

The functional currency of Entrée Gold Inc. is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss. The functional currency of Entrée Gold Inc.'s significant subsidiaries is the United States dollar. Upon translation into Canadian dollars for consolidation, monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities are translated at historical rates. Revenue and expense items are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss.

 

The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders' equity as accumulated other comprehensive income.

 

Net loss per share

 

Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At the total number of potentially dilutive shares of common stock excluded from basic net loss per share was - -

 

Comparative figures

 

Certain comparative figures have been reclassified to conform to the current year's presentation.

 

Recent accounting pronouncements

 

In the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) - "Financial Instruments - Overall (Subtopic - Recognition and Measurement of Financial Assets and Financial Liabilities". The amendments in ASU - address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU - is effective for fiscal years beginning after including interim periods within those years. The Company's financial instruments generally consist of cash and cash equivalents, receivables, deposits, accounts payable and accrued liabilities and loans payable. The fair value of these instruments approximates their carrying values. Accordingly, the Company expects the adoption of ASU - will not have a material impact on the Company's financial reporting and disclosures.

 

In the FASB issued ASU - "Investments - Equity Method and Joint Ventures (Topic Simplifying the Transition to the Equity Method of Accounting". The amendments in ASU - simplify the transition to the equity method of accounting including eliminating the requirement to retroactively adopt the equity method. ASU- is effective for years beginning after and interim periods within those years. The Company is currently reporting its interest in a joint venture as an equity investment and it does not expect the adoption of ASU - to have an impact on the Company's financial reporting and disclosures.

two

5).

 

 

Certain of the unpatented lode claims peripheral to the Ann Mason and Blue Hill deposits are leased to the Company pursuant to a mining lease and option to purchase agreement ("MLOPA") with a Nevada limited liability company. Under the MLOPA, the Company has the option to purchase the claims for which, if exercised, will be subject to a net smelter returns ("NSR") royalty (which be bought down to a NSR royalty for million). The MLOPA also provides for annual advance minimum royalty payments of which commenced in and will continue until the commencement of sustained commercial production. The advance payments will be credited against future royalty payments or the buy down of the royalty.

 

In the Company entered into an agreement whereby the Company acquire an interest in certain unpatented lode claims to the southwest of the Ann Mason and Blue Hill deposits. In order to acquire its interest, the Company must: (a) incur expenditures of make cash payments of and issue common shares of the Company within years (completed); (b) make aggregate advance royalty payments totalling between the and anniversaries of the agreement of which has been paid); and (c) deliver a bankable feasibility study before the anniversary of the agreement.

 

In the Company entered into an agreement with Sandstorm Gold Ltd. ("Sandstorm") whereby the Company granted Sandstorm a NSR royalty over certain of the unpatented lode claims, including the claims covering the Ann Mason and Blue Hill deposits, in return for an upfront payment of million (the "Sandstorm NSR Payment") which was recorded as a recovery to acquisition costs.

 

In addition, certain of the patented lode claims peripheral to the Ann Mason and Blue Hill deposits are subject to a NSR royalty.

 

 

The Company also has interests in other properties in Mongolia (Shivee West), Australia (Blue Rose), the United States (Lordsburg) and Peru (Cañariaco NSR royalty). During fiscal the Company recorded an impairment of against these properties.

20%

two

October

2009.

two

October

2004,

34%

June

30,

2008,

$35

80%

560

70%

560

 

The portion of the Shivee Tolgoi mining licence outside of the Entrée/Oyu Tolgoi JV Property, Shivee West, is owned by the Company, but is subject to a right of refusal by OTLLC. In the Company entered into a License Fees Agreement with OTLLC, pursuant to which the parties agreed to negotiate in good faith to amend the JVA to include Shivee West in the definition of Entrée/Oyu Tolgoi JV Property.  The parties also agreed that the annual licence fees for Shivee West would be for the account of each joint venture participant in proportion to their respective interests, with OTLLC contributing the Company's share charging interest at prime plus (Note

 

The conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent to the Investment Agreement (the "Oyu Tolgoi Investment Agreement") between Turquoise Hill, OTLLC, the Government of Mongolia and Rio Tinto International Holdings Limited. The licences are part of the contract area covered by the Oyu Tolgoi Investment Agreement, although the Company is not a party to the Oyu Tolgoi Investment Agreement. The Shivee Tolgoi and Javhlant mining licences were each issued for a year term and have rights of renewal for further year terms.

 

As of the Entrée/Oyu Tolgoi JV had expended approximately million to advance the Entrée/Oyu Tolgoi JV Property. Under the terms of the Entrée/Oyu Tolgoi JV, OTLLC contributed on behalf of the Company its required participation amount charging interest at prime plus (Note

 

Investment – Entrée/Oyu Tolgoi JV Property

 

The Company accounts for its interest in the Entrée/Oyu Tolgoi JV as a equity investment. The Company's share of the loss of the joint venture was million for the year ended - million; - million) plus accrued interest expense of million for the year ended - million; - million).

 

The Entrée/Oyu Tolgoi JV investment carrying value at was million - million) and was recorded in long-term investment.

5),

two

(2%)

ninety

(90%)

one

February

2013,

"2013

$40

2013

 

On the Company and Sandstorm entered into an Agreement to Amend, whereby the Company refunded of the Deposit million) (the "Refund") in cash and shares thereby reducing the Deposit to million for a reduction in the metal credits that the Company is required to deliver to Sandstorm. At closing on the parties entered into an Amended and Restated Equity Participation and Funding Agreement (the "Amended Sandstorm Agreement"). Under the terms of the Amended Sandstorm Agreement, the Company will purchase and deliver gold, silver and copper credits equivalent to:

 

 

 

Upon the delivery of metal credits, Sandstorm will make a cash payment to the Company equal to the lesser of the prevailing market price and per ounce of gold, per ounce of silver and per pound of copper (subject to inflation adjustments). After approximately million ounces of gold, million ounces of silver and billion pounds of copper have been produced from the entire current Entrée/Oyu Tolgoi JV Property the cash payment will be increased to the lesser of the prevailing market price and per ounce of gold, per ounce of silver and 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 will be credited against the Deposit (the net amount of the Deposit being the "Unearned Balance").

 

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

 

Under the Amended Sandstorm Agreement, Sandstorm has a right of refusal, subject to certain exceptions, on future production-based funding agreements. The Amended Sandstorm Agreement also contains other customary terms and conditions, including representations, warranties, covenants and events of default. The initial term of the Amended Sandstorm Agreement is years, subject to successive -year extensions at the discretion of Sandstorm.

 

In addition, the Amended Sandstorm Agreement provides that the Company will not be required to make any further refund of the Deposit if Entrée's economic interest is reduced by up to and including If there is a reduction of greater than up to and including the Amended Sandstorm Agreement provides the Company with the ability to refund a corresponding portion of the Deposit in cash or common shares of the Company or any combination of the at the Company's election, in which case there would be a further corresponding reduction in deliverable metal credits. If the Company elects to refund Sandstorm with common shares of the Company, the value of each common share shall be equal to the volume weighted average price for the trading days immediately preceding the day after the reduction in Entrée's economic interest. In no case will Sandstorm become a "control person" under the Amended Sandstorm Agreement. In the event an issuance of shares would cause Sandstorm to become a "control person", the maximum number of shares will be issued, and with respect to the value of the remaining shares, will not be refunded (and there will not be a corresponding reduction in deliverable metal credits) and the remaining will be refunded by the issuance of shares in tranches over time, such that the number of shares that Sandstorm holds does not reach or exceed All shares will be priced in the context of the market at the time they are issued.

 

In the event of a full expropriation, the remainder of the Unearned Balance after the foregoing refunds must be returned in cash. 

 

For accounting purposes, the Deposit is accounted for as deferred revenue on the balance sheet and the original Deposit was recorded at the historical amount of million. As a result of the Amended Sandstorm Agreement, the deferred revenue amount was adjusted to reflect the million Refund which was recorded at the foreign exchange amount at the date of the Refund resulting in a net balance of million. This amount is subject to foreign currency fluctuations upon conversion to US dollars at each reporting period.

 

The million Refund was paid with million in cash and the issuance of million of common shares of the Company. On the Company issued common shares to Sandstorm at a price of per common share pursuant to the Agreement to Amend.

December

31,

2016,

(2015

)

a)

   Stock options

 

may

10%

ten

may

five

zero.

 

Stock option transactions are summarized as follows:

 

		Number of shares (000's)				Weighted average exercise price CAD
Outstanding - January 1, 2014\			14,401				1.22
Granted			2,815				0.21
Forfeited/Expired			(3,437	)			1.89
Outstanding - December 31, 2014			13,779				0.85
Granted			1,670				0.34
Exercised			(347	)			0.22
Cancelled			(163	)			0.25
Forfeited/Expired			(1,731	)			2.43
Outstanding - December 31, 2015			13,208				0.60
Granted			2,520				0.42
Exercised			(586	)			0.25
Cancelled			(664	)			0.28
Forfeited/Expired			(2,468	)			1.17
Outstanding - December 31, 2016			12,010				0.48

 

At the following stock options were outstanding:

 

Number of options (000's)	Vested (000's)	Aggregate intrinsic value CAD (000's)	Price per share CAD			Expiry Date
3,215	3,215	170	0.21	–	1.25	Jan – Sep 2017
3,530	3,530	145	0.30	–	0.56	Mar – Dec 2018
2,745	2,745	385	0.21	–	0.38	Dec 2019 – Dec 2020
100	100	3		0.39		Mar 2021
2,420	2,420	-		0.42		Nov 2021
12,010	12,010	703

			December 31, 2016 CAD
Weighted average exercise price for exercisable options			0.48
Weighted average share price for options exercised			0.25
Weighted average years to expiry for exercisable options			2.56

 

 

For the year ended the total stock-based compensation charges related to options granted and vested to officers, employees, directors and consultants was million - million; - million).

 

		2016				2015				2014
General and administration		$	461			$	175			$	215
Exploration			28				22				36
		$	489			$	197			$	251

 

The following weighted-average assumptions were used for the Black-Scholes valuation of stock options granted:

 

		2016				2015				2014
Risk-free interest rate			0.62	%			0.77	%			1.25	%
Expected life of options (years)			4.6				4.6				4.3
Annualized volatility			73	%			75	%			65	%
Dividend rate			0.00	%			0.00	%			0.00	%
Fair value per option		$	0.18			$	0.15			$	0.09

 

one

 

		2016				2015
Deferred income tax assets:
Non-capital loss carry forward		$	15,016			$	13,085
Resource expenditures			4,052				4,611
Equipment			146				131
Share issue and legal costs			3				11
Other			1,881				1,926
			21,098				19,764
Valuation allowance			(17,618	)			(16,577	)
Net deferred income tax assets		$	3,480			$	3,187
Deferred income tax liabilities:
Foreign exchange on loan		$	(150	)		$	(306	)
Mineral property interests			(6,345	)			(6,448	)
Net deferred income tax liabilities		$	(6,495	)		$	(6,754	)
Net deferred income tax liabilities		$	(3,015	)		$	(3,567	)

 

 

		2016				2015				2014
Canada		$	28,000			$	26,790			$	36,340
China			660				660				690
Mongolia			7,100				6,990				7,160
United States			14,880				14,880				23,260
Australia			30				30				-
Peru			580				580				520
Total non-capital loss carry forward		$	51,250			$	49,930			$	67,970

 

The Company has available for deduction against future taxable income non-capital losses of approximately million million) in Canada, million million) in China, million million) in Mongolia, million million) in the United States of America, million million) in Australia and million million) in Peru. These losses, if not utilized, will expire through Subject to certain restrictions, the Company also has foreign resource expenditures available to reduce taxable income in future years. Deferred tax benefits which arise as a result of these losses, resource expenditures, equipment, share issue and legal costs have not been recognized in these financial statements.

 

a)

   Financial instruments

 

b)

   Fair value classification of financial instruments

 

three

may

1

2

3

December

31,

2016,

1

$13.4

December

31,

2016

2015.

December

31,

2014

250,000

$73,618

December

31,

2016,

may

7).

December

31,

2016,

2015

2014.

January

11,

2017,

first

two

December

15,

2016

17,309,971

C$0.41

C$7.1

January

13,

2017,

second

1,219,513

C$0.41

C$0.5

18,529,484

C$7.6

one

one

one

one

C$0.65

5

No

four

one

December

31,

2016,

790,000

C$0.21,

790,000

C$0.30,

50,000

C$0.33,

50,000

C$0.42

1,005,000

C$0.56

9).

1,228,075

C$51,450

1,085,000

C$1.25