a mineral-engineering company. Thiswork is carried out under the directionof a project manager assisted by a multi-disciplinary review team consisting ofprofessionals selected with a focus onmatching specific backgrounds andexperience to the particular project to bereviewed.

Completeness Review

The first step in a due-diligence review is toensure that all the major elements normallyassociated with mine project feasibilitywork are fully addressed. These elementsare:

♦ Geology and Resource Estimate♦ Mining and Reserve Estimate♦ Processing♦ Environmental Evaluation and

Permitting♦ Infrastructure and Administration♦ Project Schedule♦ Economics

A sample due diligence checklist is shownon page 4.

Site Visit

The next step in the due-diligence processusually consists of a site visit. In the caseof a grassroots project, the site-visit teamwill generally include a geologist, a miningengineer, and an environmental specialist.A process engineer will normally arrange avisit to the metallurgical laboratory wherethe testwork has been carried out. In thecase of an ongoing mining operation, the

ISSUE NO. 39 — February 2003

Independent Engineer / Due Diligence Reviews

Introduction

The majority of Independent Engineer(IE) assignments for due-diligence reviewsof mining projects are performed forfinancial institutions considering thelending of funds for new or expandingmine projects. Due-diligence work is alsocarried out for firms sponsoring orunderwriting public offerings, mergers, andacquisitions.

In many project-finance cases, IEassistance is provided to the lendinginstitutions by developing reasonableproject-completion covenants. In thesecases, the IE must always keep in mindthat the lender must be protected, whilethe borrower (usually a mining company)must be able to reasonably completeconstruction and satisfy physical- andproduction-completion requirements. Asa truly independent participant, the IEfrequently becomes a facilitator formajor mining projects by bridging thegap between the financial and operatingentities. By working with both sides, theIE can help keep small problems smalland flag large problems so they can beaddressed early in project development.

Due Diligence Process

The due-diligence process for a new orexpanding mine project normallyinvolves the review of a bankable-levelfeasibility study which has been preparedby a mining company, a mineral-engineering company, or alternatively amining company working in concert with

Copyright 2003 by Pincock, Allen and Holt, a division of Hart Crowser, Inc. All Rights Reserved.

KINROSS BECOMES SEVENTHLARGEST PRIMARY GOLDPRODUCER IN THE WORLD

AUDAX PARTNERS WITHNEWMONT ON BRONZEWINGSOUTH

ARGENTINA AND BOLIVIA TODISCUSS JOINT DEVELOPMENTOF DEPOSITS

INCREASING DEMAND BOOSTSPLATINUM PRICE

C A L E N D A R

P A H N E W S P I

Delivering Smarter Solutions

Investing in African Mining –Indaba 2003February 18 – 20, 2003Holiday InnCape Town, South Africaemail: iiconf@iiconf.com

2003 SME Annual Meetingand ExhibitFebruary 24 – 26, 2003Cincinnati Convention CenterCincinnati, Ohioemail: sme@conferon.comVisit PAH at Booth 401

PDAC 2003 Convention,Trade Show, & InvestorsExchangeMarch 9 – 12, 2003Metro Toronto ConventionCentre, North BuildingToronto, Canadaemail: info@pdac.caVisit PAH at Booth 312

Drilling and Blasting 2003April 13 – 15, 2003Holiday Inn, RiverwalkSan Antonio, Texasemail: bvoss@wme.com

2

process engineer would normally bepart of the site-visit team.

During the site visit, the technical teamwill review local infrastructure, carryout a general inspection of theproperty, examine exploratory driftsand available core, check for adequacyand review sampling methods(geologic, metallurgical, geotechnical,etc.), and collect all relevant data. It isalways desirable for the diligence-review team to meet with thesponsoring company’s technical teamduring or shortly after the site visit.

Technical Review

After the site visit, a technical review iscarried out to confirm that the level ofengineering and accuracy of costestimates are consistent with feasibility(“bankable”) requirements.

♦ Geology and Resource Estimate

Sound geological interpretation andappropriate sampling are thefoundations of a successful miningproject. Geological and geostatisticalmethodology, assumptions, andresource calculations will be reviewed,and requisite statistical checks will beperformed.

♦ Mining and Reserve Estimate

Project economics will be reviewedto determine that appropriate cutoffgrades have been calculated in thepreparation of the mine plan andreserve estimate. Opinions will bedeveloped as to the suitability of theproposed mining method, equipmentselection, and capital- and operating-cost forecasts. Mine plans will bereviewed to confirm that theproduction schedule is feasible andaccurately reflected in the cash flow.

♦ Process Plant Engineering andConstruction

Metallurgical testwork, mass balances,reagent requirements, plant flowsheetand process design, recovery estimates,plant construction and operation, as

well as forecast capital and operatingcosts will be reviewed.

♦ Geotechnical and HydrologicalEngineering

Geotechnical investigations anddesigns for mine and plantconstruction; mine-waste designincluding tailings-dam structures, heap-leach pads, impoundments and wasterock disposal areas; and overall water-balance requirements will be reviewedfor conformance with appropriatedesign standards.

♦ Environment and Permitting

The status of environmental baselinework will be reviewed includingassumptions and permit status. Inaddition, it will be determined if theenvironmental considerations areconsistent with the client’s needs andcorporate objectives (i.e., NorthAmerican as well as internationalstandards) and if all permits requiredby the appropriate authorities are inplace or can be put in place in a timelymanner with reasonable conditions.

♦ Infrastructure and Administration

Mine and plant infrastructure will bereviewed to determine if necessaryservices such as communications, firecontrol, industrial and potable water,power, roads, safety and medicalfacilities, security, and sewage treatmentare adequate and that capital andoperating costs reflect these services.Mine and plant administrative,supervisory and technical personnel, andorganization structure will be reviewed.General and administrative costs will bechecked. Additional proposed facilitiessuch as maintenance shops, warehouses,employee housing, camp facilities, andexplosive storage will be assessed.

♦ Logistics and Constructability

Many mining projects are being builtin remote locations in developingcountries. Whether the site is in thefrozen tundra of Far East Russia orthe jungles of Indonesia, the logistics

Pincock Perspectives

KINROSS BECOMES SEVENTH LARGEST

PRIMARY GOLD PRODUCER IN THE

WORLD

The approval of the Combination of Kinross

Gold Corporation, Echo Bay Mines Ltd. and

TVX Gold Inc. has made Kinross the seventh

largest primary gold producer in the world

and the new senior North American gold

producer. Kinross operates and maintains

joint venture interests in 12 gold mines

located on four continents with approx-

imately 65% of its gold production from

North America, the highest percentage of

any North American based gold producer.

Annualized gold production is expected to

reach 2 million ounces per year at total cash

cost of less than US$100 per ounce.

AUDAX PARTNERS WITH NEWMONT

ON BRONZEWING SOUTH

Having recently won a bitter 10-year legal

battle to secure the exploration license for

Bronzewing South in Western Australia,

AuDAX Resources has partnered with the

world’s biggest gold miner, Newmont

Mining Corporation. Under the joint

venture agreement, Newmont can earn a

51% interest in Bronzewing South from

AuDAX and Hot Holdings by funding

exploration, feasibility studies and mining

costs for a total commitment of AUD10

million over five years. Newmont owns the

Bronzewing gold operation north of

Bronzewing South and plans to begin

exploration of an area south and adjacent

to the mine. AuDAX would retain a 49%

stake in the 20 sq km of Bronzewing South

and an 80% interest in the remaining 100

sq km of the exploration license area at the

conclusion of the Newmont earning period.

ARGENTINA AND BOLIVIA TO DISCUSS

JOINT DEVELOPMENT OF DEPOSITS

Argentina and Bolivia have resumed talks

on a mining accord that would allow joint

development of deposits in their shared

border region. The goal of the accord is to

convert the border region into a center for

mining, similar to the deal between

Argentina and Chile that became effective in

2002 where customs and other regulations

are the same on both sides of the border.

The area along Argentina-Bolivia border has

deposits of copper, tin, zinc, lithium, gold,

and silver.

33

and constructability of new projectsrequire careful scrutiny to makecertain that project scheduling andcapital allotments are adequate.

♦ Economic Analysis

The detailed cash-flow analysisprepared by the owners or client willbe reviewed or, alternatively, anindependent cash-flow analysis will beprepared. Should it be necessary,revisions in the cash-flow andsensitivity studies will be completed torepresent alternative scenariosrequested by the client.

♦ Report Preparation

A professional technical due-diligencereport will be prepared at the conclusionof the work. The report will summarizeall the results and work done includingdata, pertinent assumptions, andmethodologies used. Risks and concernsregarding the project will be clearlyidentified and quantified where possible.

Project Completion

Under a true project-finance scenario,lending institutions universally includeproject completion covenants as part oftheir loan agreements. Completionrequirements under these covenantstypically focus separately on 1) physicaland/or mechanical completion followedby 2) the performance and/orproduction completion. Lendinginstitutions frequently request assistancein defining these covenants with specificand measurable requirements. Inaddition, a client may request a reviewof proposed engineering andconstruction contracts at this time.

Construction Monitoring

The role of the IE during theconstruction period depends on thecomplexity of the project and the needsof the financing entity. Typically, an IEis retained to monitor constructionprogress to ensure that constructionkeeps pace with the capital outlays andthat construction matches the feasibilitystudy or accepted development plan.

Any revisions to the approved plan aregenerally reviewed and approved bythe IE before implementation.Construction-related reports arereviewed monthly and periodic sitetrips are a common requirement.

Physical or Mechanical Completion

Physical or mechanical completionoccurs when all infrastructure is in place,the mine is developed to a point where itcan produce ore on a continuous basis atthe required tonnage and grade, and theprocess plant is built to designspecifications. Typically, the IE willverify that the major components are inplace, operational, and consistent withthe development plan approved by thefinancial institution.

Performance or ProductionCompletion

A typical performance or productioncompletion test is performed over a 90-to 180-day period depending on thecovenants of the loan agreement.During the test period, the mine andprocess plant must operate at agreed-upon minimum capacities, ore grades,and recoveries, with unit costs andconsumption rates not exceeding agreed-upon levels. Often completionrequirements include performance testsof major process circuits such ascrushers, grinding mills, conveyors, andflotation cells as well as the reconciliationof ore produced against the geologicmodel used in the feasibility study.

Monitoring of the production test periodby the independent consultant requiresclose cooperation with the sponsorcompany. As with the physicalcompletion test, once the production testis successfully completed, an appropriatecertification document will be executed.

Production Monitoring

It is not uncommon for the IE tomonitor project operations untilcompletion of the payback of theloan. This work may include a reviewof monthly reports and annual orquarterly site visits.

Delivering Smarter Solutions

Minerals Corner—

INCREASING DEMAND BOOSTS

PLATINUM PRICE

The threat of strikes in Russia and

expectations of increased demand

have led to rising prices for platinum.

Platinum’s major user is the North

American auto industry for the

manufacture of catalytic converters,

followed by the jewelry industry.

President Bush’s announcement that

he plans to allocate $720 million over

five years to help develop hydrogen

fuel cells, which use platinum, will add

to the demand. The average price for

platinum is expected to gain almost

6% this year to $571 an ounce

compared to $540 an ounce last year.

Montmorillonite

(Na, Ca)(Al, Mg)6(Si4O10)3(OH)6-nH2O

Hydrated Sodium Calcium

Aluminum Magnesium Silicate

Hydroxide

Montmorillonite is a member of the

general mineral group of the clays

within the smectite group. It forms by

weathering or hydrothermal alteration

of other aluminum rich minerals, and is

very commonly found in altered volcanic

ashes called bentonites.

Montmorillonite was first discovered in

1847 in Montmorillon, France. It is

usually gray, white, or pink with tints of

yellow or green. Montmorillonite

crystals expand to many times their

original volume when added to water,

which makes it a useful mineral for

several purposes. Montmorillonite is

used as a drilling mud due to the fact it

gives water greater volume, which is

important in keeping a drill head cool

during drilling and removing rock and

dirt from a drill hole. Another

important use of this mineral is to slow

the progress of water through soil and

rocks. This is important to farmers

during dry periods. Engineers have also

used this mineral to plug old drill holes

to prevent leakage of toxic fluids from

bottom levels to higher aquifers used

for drinking water. Montmorillonite can

be found in France, Italy, and the

United States.

4

4Pincock, Allen & Holt is a consulting and engineering firm serving the international mineral resource industry. Your comments and suggestions are alwayswelcome. Contact Pincock, Allen & Holt • 274 Union Blvd., Suite. 200, Lakewood, Colorado 80228 • TEL 303.986.6950 • FAX 303.987.8907 •www.pincock.com. Pincock Perspectives is published as a free information service for friends and clients. Information for New Pix is paraphrased from varioussources; references available upon request.

Delivering Smarter SolutionsPincock Perspectives

The due diligence checklist was provided by Gerald D. Crawford, P.E., Principal Mining Engineerdave.crawford@pincock.com.

Geology Mining General Mining Environmental

Regional Geology All Mines Equipment Selection Site Background / Baseline

Mining District History-Ownership Existing Project Description Operating Parameters Climate

Property Geology Ore Type Descriptions Special Considerations Vegetation

Ore Genesis Cutoff Grade Assumptions Mechanical Parameters Seismology

Mineralization Grade Control Method Drilling Special Conditions

Weathering and Post Mineralization BECO and IPCO Calculation Blasting Air Quality

Summary of Controlling Geology Metallurgical Impacts Loading Hydrology - Surface

Exploration and Database Compilation Stockpiling Hauling Hydrology - Subsurface

Exploration History Stockpile Aging Support Biota

Regional Mapping Dilution and Recovery Operating Hour Summary Acid Generation Potential

Topography Hydrology and Water Management Manpower Waste Dump Chemistry

Drilling and Sampling Surface Mining Training Endangered Species

Drillhole Location Map Floating Cone / LG Optimization Engineering and Survey Local Population

Geotechnical Logging Pit Design Parameters Management Regulatory Agencies

Bulk Density Determinations Artificial Pit Restrictions Milling Permit Requirements / Status

Geological Logging Tonnage Optimization Curve Metallurgical Background Site Impacts

Sampling and Sample Prep Cone/Shell Check Metallurgical Sample Locations Reclamation

Assaying Geotechnical Analysis - Pit Slopes Metallurgical Test Work Structure Foundation Characterization

QA / QC Procedures - Check assays Pit Design Basis from Cones / LG Crushing Test Work Regulatory History

Twinned Holes or Samples Slope and Road Design Grinding Test Work Capital Costs

Assays By Size Fractions, Sampling Protocol Ultimate Pit Design Metallurgical Recovery General Cost Summary

Surface Trenching, Pit Samples or Channel Samples Ultimate Pit Reserves Metallurgical Trouble Spots Mining

Excluded Samples and Reasons Phase Plans Flowsheet Processing

Chain of Custody Program Production Schedule Capacity Infrastructure

Database Description Schedule Optimization Operating Parameters Sustaining Capital

Checks of Duplicates, Repeats, etc. Pit Advance Maps with Dumps Special Considerations Working Capital

Check Randomly Selected Samples Pit Water Control and Hydrology Mill Production Schedule Owner's Costs

Downhole Bias Contamination Checks Project Specific Conditions Mechanical Parameters EPCM Costs

Database Adjustments Dump Design - Geotechnical, Geochemical Manpower Operating Costs

Resource Estimation Dump Design - Geometry Training Mining

Geological Model Development Dump Reclamation Considerations Management Processing

Identification of Controlling Lithology Underground Mining Infrastructure Infrastructure

Construction of Rock/Lithology Model Primary Access (Shaft / Decline / Adit) Access Roads Assessed Charges

Data Declustering Primary Development (Main Haulage) Power Supply Capitalized component breakout

Block Model Definition Secondary Development (Stope Access) Water Supply Marketing

Modelling Method Mining Method Housing Market Analysis

Block Statistics Stope Design Logistics, Warehousing for supplies Concentrate Sales Agreements

Basic Statistics and Cum.Freq. Ventilation Problems (CO, Radon, Methane, etc) Port Facilities Dore Sales Agreements

Population Identification Ventilation Design Product Transport Freight and Insurance

Correlation Power Distribution Air Service Project Schedule

Compositing Water Distribution Medical Care Site Background / Baseline

Composite Statistics Compressed Air Distribution Communications Task List

Variography Emergency Evacuation Security Critical Path Chart

Capping Pumping Administrative Staffing Economic Analysis

Confidence Limits Rock Mechanics and Ground Support Methods Accounting Project Revenues

Existing Workings Backfill Type and Design Personnel Exclusions

Model Validation Development Schedule Government Relations Taxes and Customs

Reconciliation against Production Stope Production Capacities Purchasing Royalties

Resource Statement Stope Extraction Schedule Information Management Financing

Site Layout & Facilities Discount Rate

Cash Flow Projection

Sensitivity

DUE DILIGENCE CHECKLIST