Entree Gold Inc. (AMEX: EGI) announced on Wednesday, that the company had formed a joint venture with Ivanhoe Mines Ltd. (NYSE: IVN) as a result of certain production goals having been met. The agreement was made following the terms of an Earn-In Agreement the companies have had in place since 2004. The Earn-In agreement will now be superseded by the joint venture agreement.It appears that the main reason for the joint venture to be formed was the level of expenditures incurred by Ivanhoe Mines Mongolia Inc. XXK, a subsidiary of Ivanhoe, which reached the level of $35 million in exploration costs.
The President and CEO of Entree, Greg Crowe , commented on the agreement: "Ivanhoe Mines has been an outstanding partner, as evidenced by the discovery of the resources at Hugo North Extension and Heruga. These deposits complement their already substantial reserves. We look forward to working with Ivanhoe Mines as our joint venture partner. This will clearly benefit all of our shareholders and the people of Mongolia."
The Earn-In Agreement originally required Ivanhoe to spend more than $20 million to subsequently earn any interest in the Project Property. Having spent $35 million, Ivanhoe earned an even greater interest.
On the Entree side, the company can require Ivanhoe to fund a part of joint venture expenditures. Also the agreement ensures that Entree will not get diluted out of its interest due to financial problems.
Since the companies have been in a long term partnership before the joint venture agreement, things should not change much subsequently. Still, investors should expect some more volatility in Entree's stock, due to the considerably poor current trading volumes.
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