Challenges, Risks & Opportunities For the Mining Industry in the Americas

World Mining and Energy Expo 14 August 2013 – Miami

CHALLENGES, RISKS, & OPPORTUNITIES

FOR THE MINING INDUSTRY

IN THE AMERICAS

Tim Alch V.P & Senior Minerals Business Analyst Behre Dolbear & Company (USA), Inc.

+1.845.480.1434

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS

Behre Dolbear

• Our expertise, integrity, and adherence to highest ethical and professional

standards has earned the respect of the industries we have served since

1911 creating value for clients with independent advice

• Our reputation stems from our global approach, best-in-field consultants’

experience, expertise and matchless integrity supporting reliable and truly

independent recommendations

• We have 12 offices in 8 countries and completed 210+ projects in 55+

countries in each of the last 5 years using our global network of 125+

professionals that includes work experience throughout the Americas

• We advise clients to optimally plan, manage, and operate in the mining and

minerals processing of base and precious metals, coal, uranium, ferrous,

fertilizer, and industrial minerals, gemstones, construction materials, etc.

2


Behre Dolbear

• Our clients include mining, banking, investment, legal, accounting firms, and

state-owned mineral producers, government agencies, non-traditional

providers of mining finance, multi-lateral-export credit agencies, sovereign

wealth funds, private capital pools, family offices, trading companies, and

strategic mineral consumers that sponsor mineral development

We have conducted extensive technical and financial due diligence on

copper-polymetallic base, precious metals, etc. projects in the Americas

Behre Dolbear was engaged by the Board of Governors of the Hong

Kong Stock Exchange to review Listing Rules for Mining Companies

In 2012, our Capital unit advised Hong Kong Exchanges & Clearing

Limited on its US$2.1B acquisition of the London Metal Exchange

We regularly write and review Independent Technical Expert reports

Our capabilities span managerial, technical and financial issues

• Additional information about Behre Dolbear is shown at the end herein

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Mining is a Long Term Business

With Many Risks

• Recent and current trends

• The significance of mining

• Country, political risks, et al.

• All resources are not golden

• Being prepared is always best

4


Current Environment for Miners and

Investors

• Recent economic data less robust with conflicting global indicators

Waning growth in China reflects shifting priorities versus continued global urbanization and industrialization in populous developing countries

Regulatory, political, and resource nationalism risks rising

• Investors want returns on investments. Reserve replacement and production growth at any and all cost, is not enough

Major, large and small mining companies are writing down assets

Expansion plans, new projects are being curtailed indefinitely

Many Junior miners lack adequate development capital

• Margins are under pressure as are Boards and Executives

Commodity prices are off from recent highs

Costs are up, project overruns have become common

Optimizing operating properties, strengthening cash flow is goal

• A chorus of actions to cut operating costs, sell marginal assets, and reduce capital expenditure commitments is being heard

5


Metals and Mining Equities Reflect Recent

Weaker Prices, Profits, and Growth

Since 4Q2011, investors show less interest in Global and North American

mining equities and favor broad general market indices

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ACWI = iShares MSCI ACWI ETF (worldwide equity index)

BWMING = Bloomberg LP worldwide mining index

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S&P 500 vs. TSX Global Mining ETF

TSX Global Mining Index ETF S&P500 ETF

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Metal Prices Are Down Since Last Year

2006

Avg

Prices

2007

Avg

Prices

2008

Avg

Prices

2009

Avg

Prices

2010

Avg

Prices

2011

Avg

Prices

2012

Avg

Prices

Prices

as of

July 26,

2013

July 26,

2013

vs.

Avg

2012

Aluminum

($/lb) 1.16 1.21 0.83 0.83 0.99 1.09 0.93 0.79 -15%

Copper

($/lb) 3.05 3.25 1.62 2.34 3.42 3.99 3.61 3.10 -14%

Lead

($/lb) 0.58 1.18 0.56 0.78 0.97 1.09 0.94 0.93 -1%

Nickel

($/lb) 11.01 17.25 4.62 6.65 9.87 10.38 7.96 6.21 -22%

Zinc

($/lb) 1.48 1.50 0.52 0.75 0.98 0.99 0.89 0.82 -8%

Gold

($/ounce) 603.46 695.39 736.0 972.91 1,225 1,573 1,669 1,331 -20%

Silver

($/ounce) 11.55 13.38 9.31 14.64 20.10 35.12 31.15 20.02 -36%

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$ P

er T

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ne N

ick

el

$ P

er T

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ne

(Co

pp

er, L

ead

, Z

inc,

Alu

min

um

)

Nominal Industrial Metal Average Prices

1970 – 2012

Aluminum Copper Lead Zinc Nickel

The Recent Metals Price Spike Follow

a 30 Year Period of Capital Destruction

Data Source: USGS and LME

Capital

Destruction

Capital

Creation

Capital

Destruction ?

8


Asia, Africa, LatAm Want a Better Quality of

Life; On Average Did Better Since 2002

9


More Consumers, More Money, and Minerals This Curve May Flatten Too

10


China’s Growing Urban Population

Continues at Scale Hard to Comprehend

11


World’s Largest Mass Migration Continues,

Next, the World’s Middle Class Rises

• In the next 20 years, another 320 million Chinese people will move to urban

areas and its middle class may double to 600+ million by 2020

• Similar changes are occurring elsewhere in Emerging Markets worldwide

• China’s changing priorities may soften its metals demand growth and GDP

12


China Consumes About Half the

World’s Metals, Energy, etc.

Source: UBS

13


As China’s GDP Growth Eases, Its Share of

Consumption May Level Off: At High Levels

Source: The Economist and UBS

14


Gold Is Not an Industrial Metal Driven by Investor Sentiment, Price is Now ~$1,300

http://www.kitco.com/charts/historicalgold.html

15


Recent Global Gold Investment Trend*

Source: GFMS, Thomson Reuters

* Global Gold Investment is the sum of implied net investment, physical bar investment, and all coins and medals

16


China’s Appetite for Gold is Rising –

Will This Trend Continue for Next 10 Years?

Source: Frank Holmes, CEO and President of US Global Investors' July 2013 article 'The Asian Giant Stampeding Into Gold'

17


Today Gold Supply is From Mines

and Scrap

Source: GFMS, Thomson Reuters 18


Gold as a Share of the Pool of

Global Financial Assets is Small

Source: CPM Group 19


Gold Prices and Costs Rose;

Margins are Less at $1,350/oz

Source: BMO Research

20


Not All Resources Are Golden Or Economic

• Markets are not static, nor are prices and cost of doing business, etc. There are many variables and a long period of time is involved

• If it sounds too good, it likely is. Inexperience, misleading statements, and questionable practices require knowing who, what you are dealing with

• There is no good substitute for an independent technical review by qualified experts about the geologic, business potential of the resource

• Investors want independent verification

21


Today – Less Investor, Lender Interest

• A Risk-off attitude is plaguing mining equities

• Economic growth in China, EU, etc. is slower

• Investor outlook is more cautious with GFC, Euro Crisis, Cyprus, China slowing, etc.

• Metals prices and valuations are down

• Many ‘Juniors’ are short of capital

• Many Juniors’ existence is issue

• There is less speculative interest

• Cash and Cash Flow is King

22


Sector Has Shifted From Growth Paradigm

to Cost and Capex Control

• Executives are cutting capex, refocusing on higher quality assets, suspending projects, and partnering on certain projects

• Alternative, non-traditional investors SOE, SWF may strategically, opportunistically fill the gap

• Private equity may capitalize on low valuations

• Strategic transactions may drive M&A

• Tough markets may continue in 2014

23


Reasons to be Optimistic – Longer Term

• Urbanization and industrialization in China, Asia, India, South America, Middle East, Africa, etc. continues to drive industrial metals and energy demand

• Security and stability of supply are a concern in China, Korea, Japan, Middle East, etc. and of some industrial companies e.g., energy fuels (coal, uranium), fertilizer minerals, technology/critical metals, etc.

• Constraining new supply are: Declining ore grades and spending; Higher costs; Fewer large deposits; Larger ‘takes’ by Governments; Changing political winds; etc.

• Metals supply longer term may struggle to meet demand. Sporadic price spikes may/can occur

• Prices may stay above long term averages

24


Caution Always Best: Mining is

Cyclical and Impacted by Many Risks

• What happened since 2002 is in the past – the

near term may/can be very different

• You can lose a fortune being optimistic about

the near term – some already have

• Behre Dolbear does not forecast metals prices

• We focus on geo-technical, operating, business,

and financial issues impacting exploration,

development and operations in mining

• We do conduct an annual Survey about Where

to and Not to Invest in the Mining Sector

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Behre Dolbear’s Country Risk Survey

Focuses on Political Risk, Not Geotechnical

• Since 1999, Behre Dolbear conducts an annual

survey of country risk for mining investments to

assist potential investors in 25 of the most

active mining markets around the world

• Countries that stifle mining with detrimental

political, economic, financial, and regulatory

policies should be challenged to make changes

that are more accommodative to its success

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Behre Dolbear’s Annual Ranking of

25 Countries for Mining Investment

• Our view is there is positive correlation between

the growth of a nation’s wealth and prosperity of

its mining and minerals processing industry

• Only when a country recognizes critical need to

adapt and restructure burdensome policies

– will it truly optimize its economic potential

• Our survey does not focus on geology and or

geo-technical risk

27


Behre Dolbear’s Annual Ranking of

25 Countries for Mining Investment

• We evaluate these criteria as they pertain to the exploration, development, operation of and investment in mines, and rank each country by:

Economic system

Political system

Degree of social issues affecting mining

Permitting process and other delays

Degree of corruption

Stability of the currency

Tax regime

• All criteria are weighted equally on a 10-point scale, with 70 total possible points

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The Americas Rank High in Our Survey

• Brazil, Chile, Colombia, Mexico, Peru, Canada, and

USA consistently rank high to operate in and for

investment

• Countries perceived to have the lowest political risk, all

other things being equal, are able to attract more of the

global mineral investment and realize a premium for

resources over countries where perceived instability

exists. Attracting capital investment is competitive

• Mining companies and investors, shareholders, and

project stakeholders require confidence they are in

stable agreements and able to accommodate variable

market conditions over extended periods of time

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Behre Dolbear’s 2013 Ranking of

25 Countries From Safest to Riskiest

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1. Australia

2. Canada

3. Chile

4. Brazil

5. Mexico

6. United States

7. Colombia

8. Botswana

9. Ghana

10.Peru

11.Namibia

12.Mozambique

13.Tanzania

14.Philippines

15.Argentina

16.China

17.India

18.Indonesia

19.Mongolia

20.Zambia

21.South Africa

22.Papa New Guinea

23.Kazakhstan

24.D. R. Congo

25.Russia


The Americas is a Favorite

Mining Investment Destination As shown in the International Council on Metals and Mining (ICMM) Oct 2012

article ‘Mining’s Contribution to Sustainable Development’ about Regional

Project Investments in 2011 (based on Raw Materials Advisory Group data)

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Region

Investments

(US$ Billions)

Share

(%)

Lain America 192 28

North America 124 18

Oceania 113 17

Africa 99 15

Europe 75 11

Asia 73 11

Total 676 100


Attracting Investment is Competitive

• Government officials at the local, state and federal levels should work with and know operators and investors respond to stakeholder expectations

• Changing taxes, royalties, etc. deters investors that require stability and consistency to earn a return and retain access to capital markets

• Investors can feel stymied by inconsistent, convoluted and changes in mining policy and terms and require trust with local stakeholders

• To increase investment consistent, efficient enforcement of law is best:

Certainty – Security of Title/Tenement

Confidence – Development Approvals

Confidence – Social and Environmental Issues

Confidence – Tax/Royalty Regime

Acceptable Level of Sovereign Risk

32


Finding An Economic Resource

Is Expensive and Risky

33


Exploration is Very Risky and Expensive,

From Discovery to Start Up is About 17 Years

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Source: Stephen Enders from Eurasian Minerals at SME

Current Trends in Mining Finance Conference April 2013


Balancing Expansion with Local

Development is Needed

• After discovery is development and mineral processing –

an energy intensive stage of the production chain – from

milling, grinding, processing to smelting and refining

• All jurisdictions face more than geotechnical challenges,

such as infrastructure, water, power, human, and financial

capital. A balanced approach is best and works

• In remote, less developed regions projects require proper

long term plans and cooperative support of stakeholders,

local communities, and all levels of government

• There are many examples of successful projects benefiting

local economies and communities and other stakeholders

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Investments Are Long Term

• To be successful projects and investors need to have

confidence that stable, consistent rule of law exists in

order to earn competitive returns and maintain access to

capital through cyclical and volatile market conditions

• Investment trends are competitive and reflect variable

economic trends as are the expectations and risks of

project owners, shareholders, lenders, investors, etc.

• Stakeholders evaluate projects in a risk-adjusted

manner seeking to reduce risk exposure

• Planning for different, changing risks is difficult

36


Top Ten Risks Facing the Mining and Metals

Industry Over Five Years – By E&Y

2008 2012

1. Skills shortage

2. Industry consolidation

3. Infrastructure access

4. Maintaining social license to operate

5. Climate change concerns

6. Rising costs (cost inflation)

7. Pipeline shrinkage

8. Resource nationalism

9. Access to secure energy

10. Increased regulation

1. Resource nationalism

2. Skills shortage

3. Infrastructure access

4. Cost inflation

5. Capital project execution

6. Maintaining social license to operate

7. Price and currency volatility

8. Capital management and access

9. Sharing the benefits – new

10. Fraud and corruption

37 Red = Remained in the Top Ten Over Five Years

Source: E&Y Business Risks Facing Mining and Metals 2012 - 2013


Trained, Independent Eyes Are Best to

Evaluate Geo Technical Issues

• Simply, best projects are low cost, in stable regions and

likely today are expansions/extensions of existing mines

• Resources are concentrations, occurrences of minerals

in such form, quantity and of such grade or quality they

have reasonable prospects for economic extraction

• Qualified management and officials are essential to

realize project value as are understanding markets,

definitions, methods to describe a resource that can

vary by user and jurisdiction

BEWARE OF RULES OF THUMB

38


When to Call Independent Experts

• Resources are not a curse, they are essential

• Failure to properly manage is not good

• Expert advice early on is best, if you are an owner,

investor, and or an official evaluating policy

• All too often experts are called upon when:

A property, project, transaction is off course

Lenders and investors are out of patience

Company and owners are out of money

Despair has set in

39


Miners, Geologists Are Trained to Find,

Explore – Core to the Business

Mining companies and management feel

obliged to find and develop new competitive,

low cost resources, i.e., their Life Blood,

to replace reserves – that are diminishing assets

MANAGEMENT & INVESTORS BEWARE!

Once a Fido = Dog, Always a Phydeaux

= A Higher Class Dog is Still A Dog!

Less capital is available today for exploration

40


Goal is to Realize Value: How? When?

Chart is Not Reality, Nor a Given. It is Theory

41


Our Role as Independent Experts

Whether we are advising mining companies, investors, lenders, or government stakeholders, all benefit from our qualified expertise to:

• Evaluate the inherent risks

• Act as resident skeptic

• Hear our view about project risk(s):

High Risk: A factor poses an immediate danger of a failure, if uncorrected, may have a material effect (>15%) on the project cash flow and performance and could lead to project failure

Moderate Risk: A factor, if uncorrected, could have a significant effect (10%) on the project cash flow and performance unless mitigated by some corrective action

Low Risk: A factor, if uncorrected, may have little or no effect on project cash flow and performance

42


Economic Worthiness of a Property

Is Impacted By Many, Many Variables

Study these and many other items with discerning, trained eye:

• Property Information and Stable Regulatory Environment

• Geology and Resources

• Mining

• Mineral Processing and Metallurgy

• Infrastructure

• Products, Markets, and Sales

• Environmental and Permitting

• Financial Issues

• Development Costs and Schedule

• Political and Social Considerations

• Market

• Project Economics – Opex and Capex

43


Three Levels of Engineering Studies

Used to Define Economic Worthiness

Conceptual Study/Scoping Study

Pre-feasibility Study

Feasibility Study

44


Engineering Studies – Scoping Study

• aka Conceptual Study, Preliminary Economic Analysis

• First engineering study to compile all elements of a

project into one evaluation and apply economic tests

• Its accuracy is based on first principles, knowledge,

and experience and is generally +50% / -25%

• This is the least expensive engineering study and is

usually completed in 90 days or less

45


Engineering Studies – Pre Feasibility Study

• aka PFS or Pre-Feasibility Study

• Accurate to +25% / -15%

• May take 6 to 18 months to complete

• Engineering evaluation applied to key elements, such as:

• The caliber of the resource estimate

• The mine design

• The process design

• Mineralogical analysis

• Metallurgical testing

• Soil and rock engineering tests

• Smelting/refining and marketing

• Environmental work – the EIA is completed during the PFS

• Cash flow analysis, sensitivity analyses, and economic tests

46


Engineering Studies – Feasibility Study

• Feasibility Study or Definitive Study

• The document upon which mine is approved by the

Board of the mining company developing the mine

• If financing is required, this is the document evaluated

by financial institutions in their decision-making process

• The Feasibility Study is also the document to which the

completed and commissioned mine plan is compared to

determine its commercial status

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Definition – Feasibility Study

“A comprehensive study of a mineral deposit in which

all geological, engineering, legal, operating,

economic, social, environmental and other relevant

factors are considered in sufficient detail that it

could reasonably serve as the basis for a final

decision by a financial institution to finance the

development of the deposit for mineral production.”

- Canadian National Instrument 43-101

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Ten Types of Project Risk to Examine

• Geological

• Mining

• Metallurgical/processing

• Environmental and social issues

• Human resource issues

• Market

• Operating and capital costs

• Company

• Country

• Financial Institution

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1. Geological

• Geological Risk

Reserves

Reserves

Reserves 50


In Best Case: Accepted Resource – Reserve

Classification System Can Be Used

Australia JORC Code

Canada CIM 2000 / NI 43-101

Europe PERC

South Africa SAMREC Code

United States SME / SEC Industry Guide 7

Russia A, B, C, D, E

China Traditional and New (1999)

51


2. Mining

• Mining Risks

Surface versus underground

Drilling/blasting

Rock hardness

Dilution

Mine plan

Cut-off grade

52


3. Metallurgical Processing

• Metallurgical/Processing Risk

Recovery method

Adequacy of testing

Representativeness of samples

Contractor/mill constructor

53


Deeper Dive: Issues To Examine

• How much? What is head grade %

• What is the valuable mineral?

• What is the particle size of the mineral relative to all of the other minerals in the ore?

• What are the relative specific gravities of the valuable minerals and gangue?

• What is the overall competence or hardness of the rock containing the ore?

• Magnetism, radioactivity, electrostatic response

• Color, reflectivity, UV response, chemistry

54


Where Is the Metal?

How Hard Will it be to Separate?

po, pyrrhotite; py, pyrite; cpy, chalcopyrite)

Au – Gold; BI – Bismuth

55


Steps to Process Minerals

• Size Reduction: crushing and grinding

• Sizing: screening

• Classification: by gravity and size

• Separation or Concentration: use any one or a

combination of mineral processing steps

available to produce a concentrate

• Dewatering of Tailings or Concentrates: via

settling, filtration, and drying, for example

56


Typical Gold Processing Circuit

57


Mills Are Large and Costly

58


5. Human Resources

• Human Resource Issues

Management

Organization

Union contracts

Pension liabilities

Social issues/local peoples

MIS/IT systems

60


6. Market

• Market Risks

Who will buy product/marketability

Smelter availability

How many smelters?

Contract (Good for both parties)

Hedging/forward sales

61


7. Operating and Capital Costs

• Operating and Capital Costs

Operating Costs

− Dramatic recent increases due to higher fuel

costs, higher wages, higher supply costs, and

delays in deliveries of supplies

Capital Costs

− Increases in steel and equipment costs have

affected all proposed operations and expansions

of existing operations

− “Blowouts” are now frequent

62


8. Company Risk

• Financial strength

• Mining experience

• Management experience

63


9. Country Risk

• Political stability

• Tax regime

• Attitude toward mining

• Nationalization/privatization history

• Foreign exchange controls/currency stability

64


10. Financial Institution

• Experience in country

• Presence in country

• Experience in industry

• Financing capability

65


Highlighting Four Issues Impacting

Project Success Today

Four issues impacting the mining industry today

that operators, investors, regulators, and officials

need to understand and manage properly

• Social license and environmental issues

• Controlling operating and project costs

• Higher government take/resource nationalism

• Access to capital

66


1. Social License and Environmental Issues

• Social opposition to mining and environmental

issues are causing project delays and cost

increases at mining projects

• Striving to be compliant with regulations and

NGO agitation, etc. are contributing to higher

project costs and delays

• Gaining confidence of a local community is as

essential as it can be expensive for a mining

company to gain a Social License to operate

67


2. Cost Control is Essential

Recent trends became intolerable:

• Capex rose in recent years

• Capex lags metal prices

• Over runs are an issue

• Investments are at risk

• Projects being idled

• High grading ores

Per Unit of Annual Production (US$)

Gold $1,250 to $2,500 per oz of annual production

Copper $3.50 to $4.50 per lb of annual production

Elevated Indicative Capital Costs

68


Building Mines – Capital Costs

• Capital costs are primarily dependent on

Location, political situation, skilled labor availability

Depth of ore zone and mining horizons

Shaft and or adit/ramp access

Plant size

− Equipment fleet size and material handling capacity

− Processing plant capacity to match mining rate

− Shaft size and hoisting capacity

Mining method

− Level of mechanization and automation

− Productivity per man shift

69


Different Geology; Different Economics

• Of the world’s gold production the bulk is from

sulphide ore rather than oxide ore

• Project and operating economics are different

• Representative indicative measures:

Sulphide Ore: Capex low grade $300 to

$700+ million; minimum 2 to 5m oz

Oxide Ore: Capex is scalable with Opex =1/5

of Sulphide; minimum scale can be small

70


Many Issues Can Go Wrong When

Estimating Mine Operating Costs

• VAT/sales tax, not included and import duties neglected

• Improper cycle times and haulage distances used

• Fuel and electricity costs under estimated

• Ground control under estimated

• Mining sequence and methods

• Poor waste dump design

• Inadequate pre-stripping

• Poor haul road design

• Pit slopes

• Dilution

• Etc.

71


Recent Examples of Capital Costs

Rising Above Plan (US$ Billions)

Project Original Current

Pueblo Viejo 2.5 3.5

Galore Creek 2 5+

Cerro Casale 2 6

Pascua Lama 3

8+

72


3. Increased Government Take Occurring

• Changing rules and Government ‘take’ at local,

state, and federal levels are today’s reality

• aka resource nationalism is an issue raising

project risk and investor uncertainty

• In normal mining cycles, a project will fail if

Government take exceeds 50%

• Over time investors, lenders, owners, and local

stakeholders bear the brunt

• Miners take all the risk

73


4. Access to Capital

• Currently, equity and debt difficult to obtain

• New sources of funding need to be found

• Private Equity, State Owned Enterprises, etc.

may play a larger role

74


Recent Capital Markets Trends

• Metals markets in 2012 - 1H13; turbulent at best

• A long term perspective is needed in mining

• Banks, investors, operators are risk adverse

• Management, employees, partners, customers,

i.e., all stakeholders need to be realistic

• Uncertainty may continue into 2014

75


More Consolidation in Mining is Likely

• Alternative and strategic investors, private equity,

SWFs, and SOEs may opportunistically step in

• Valuations are less than greenfield investment

• Consolidation likely to form Super and Larger Majors

• SOEs, SWFs, e.g., Japan, Korea, India likely to

continue to acquire strategic metals and energy fuel

resources

• Strategic M&A may buoy asset and share prices

76


Of the Top Ten Commodities by Global

Projects in 2011: Gold Was #1

• Investors, lenders, and speculators were attracted to precious

metals

• What will 2013/4 look like?

Source: Intierra

77


In 2011 China M&A Focused on Gold

Source: Ernst and Young

78


In 2012 Coal, Gold, Copper M&A Was High

21.4

17.9

14.2 13.4

7.3

5.3 4.0 3.9 3.6

2.3

10.6

0

5

10

15

20

25

$ B

illio

ns

2012 M&A Activity by Target Commodity

Source: Ernst and Young

79


Recent China Acquisition Trend By Region –

USA and Canada = Small Share

By Value 1st Half 2012

80


Mining in the Americas Has an

Excellent Future

• Mining has a long history in the Americas

• Geology, location, and labor are excellent

• Economic benefits from mining are real

including royalties, taxes, employment, etc.

• Best to continue providing stable business

friendly policies, invest in infrastructure,

safety, education, and training, as needed

• The market this past year changed considerably

which officials should be mindful of

81


Prepare for the Best and Worst

Check and Double Check

• While mining has a favorable outlook, it is

competitive and capital intensive with the

recent 10 years largely impacted by China

• Projects in the first cost quartile will be funded

• Partner with skilled, business managers

• Moderate country risks of doing business

• Expect continued volatility and cycles

• Investors do carefully weigh costs of doing

business and political country risk

82


The Behre Dolbear Group

• We perform technical, operating, financial issues and valuations studies advising clients in the mining, banking, investment, financial, legal and accounting sectors and government agencies around the world

• Our group of experts provides a reservoir of proven expertise and experience in all disciplines related to the mining of base, precious and ferrous metals, coal, uranium, fertilizer and industrial minerals, gemstones, construction materials including cement, dimension stone, sand, and gravel

• Behre Dolbear Group consists of a five operating divisions, each offering a range of highly specialized and complementary services. They are:

Technical Consulting

Engineering Services

Behre Dolbear Capital (Financial advisory)

Management Consulting

Environmental Services

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• To meet client requirements, we select, integrate and manage our highly qualified and experienced specialists drawn from the appropriate division.

Each are selected for their particular skill-set and ability to provide the highest levels of insight, advice and recommendation

They have experience in many transactions involving brown and green field projects requiring lender due diligence and project monitoring.

If other skills and experience are required, our flexibility and depth of resource allows us to deliver them swiftly and efficiently

• We have 12 offices in 8 countries, completed 210+ jobs in 55+ countries in each of the last 5 years using our global network of 125+ professionals

Tim Alch

V.P. & Senior Minerals Business Analyst Behre Dolbear & Company (USA), Inc.

100 Park Avenue, New York, New York 10017 +1.845.480.1434 [email protected]

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mailto:[email protected]



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Appendix

Characteristics of 3 levels of engineering studies –

Not exhaustive, rather indicative checklists that

require trained, qualified experts’ review:

Conceptual/Scoping Study

Pre-feasibility Study

Feasibility Study

86


Characteristics of Scoping, Pre-Feasibility,

and Feasibility Studies – A1 Potential Areas of Investigation

for Proposed Mining Projects

PROPERTY INFORMATION

Location, topography and climate

Land ownership and royalties

Property history

Current status

GEOLOGY AND RESOURCES

Geological description

Mineralogy

Drilling, sampling and assaying

Evaluation techniques

Mineral resource estimate

MINING

Ore reserve estimate

Mining method and plans

Mining equipment

Material handing

Material handling equipment

Historical and forecast production

Consumables

Mining capital estimates

Mining operating cost estimates

PROCESSING

Ore sampling and testwork

Processing method

Other required processes

Process equipment

Historical and forecast production

Consumables

Processing capital estimates

Processing operating cost estimates

INFRASTRUCTURE

Industrial infrastructure facilities

Social infrastructure facilities

Utilities, power, water

Infrastructure capital estimates

Infrastructure operating cost estimates

MANAGEMENT AND LABOR

Management organization requirements

Labor requirements

PRODUCTS, MARKETS AND SALES

Products

Markets

Prices

Sales

ENVIRONMENTAL AND PERMITTING

Permit list

Environmental impact

Compliance costs

Compliance cost timing

Reclamation expenses

FINANCIAL ISSUES

Taxes

Royalties

Fees

Licenses

DEVELOPMENT COSTS AND SCHEDULE

Development cost estimate

Development schedule

Development methodology

POLITICAL & SOCIAL CONSIDERATIONS

Economic benefits and costs

Government considerations

Other issues

PROJECT ECONOMICS

Economic parameters

Discount rate determination

Cash flows

Investor returns

Debt analysis

Sensitivities

87



and Feasibility Studies – A2 (continued)

CATEGORY CONCEPTUAL

STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY

INTRODUCTION

Location, Topography, and Climate

Site location map

Ownership and Royalties

Claims list

Claims map

Current Status and History

Historical chronology

Information on past production, if any

•Yes

•No

No

No

No

•Yes

•No

Yes

No

No

•Yes

•Yes

Yes

Yes

Yes

GEOLOGY AND RESOURCES

Geological Description

Geological map

Geological cross-sections

Drilling, Sampling, and Assaying

Parameters

Drill hole location map

Sampling/assaying flow diagram and assessment

Assay check assessment and graph

Mineral Resource Estimate

Resource methodology determination and approach

Geologic model limits

Lithology/tonnage factors/code

Cumulative frequency of samples verses grade

Variograms

Resource Estimate

Yes

No

Yes

Yes

No

No

Yes

Yes

No

No

No

Industry Standards (NI 43-

101, JORC, etc.)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes


101, JORC, etc.)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes


101, JORC, etc.)

88




CATEGORY CONCEPTUAL

STUDY/SCOPING STUDY

PRE-FEASIBILITY

STUDY FEASIBILITY STUDY

MINING

Ore Reserve Estimate

Reserve and resource calculation parameters

Cutoff grade equations

Reserve and resource estimate

Mining Method and Plans

Mining parameters

Hydrology/geotechnical parameters

Mining equipment list

Consumables list

Material handling systems

Material handling equipment

Personnel list

Surface mining

Final pit and dump outlines

Incremental pit and dump outlines

Underground mining

General mine development

Mining approach (stoping, cut and fill, etc.)

Production Schedule

Historical production, if any

Annual ore and waste tonnage and grade

Mining Capital and Operating Cost Estimates

Mining operating cost estimates

Mining capital cost estimates

Assumed Values

No

Industry Standards

Yes, minimal engineering basis

No

No

No

No

No

No

No

Yes, simple outline

No

Yes, general outline

Yes, general approach

Yes

Yes, division of total

Yes, factored ±45%

Yes, factored ±45%

Test-Based Values

Yes

Industry Standards

Yes, some geotechnical data

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, ±30%

Yes, from engineering

manuals ±30%

Test-Based Values

Yes

Industry Standards

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, ±15%

Yes, from vendor quotes and

take-offs ±15%

89




CATEGORY CONCEPTUAL


PROCESSING

Ore Sampling and Test Work

Test work data

Processing Methods and Plans

Processing methods

Processing parameters

Equipment list

Consumables list

Personnel list

Material balance

Flow diagram

Site plan

General arrangement drawings

Production Schedule

Historical production, if any

Annual production tonnage and grade

Off-site Processing Cost Estimates

Concentration charges

Smelting and refining charges

Other charges

Material handling and transport

Insurance and sales charges

Processing Capital and Operating Cost Estimates

Processing operating cost estimates

Processing capital cost estimates

No, assumed values

Yes, general approach

Yes, minimal engineering

No

No

No

No

No

Yes, simple block diagram

No

No

Yes

Yes, division of total

No

No

No

No

Yes, factored ±45%

Yes, factored ±45%

No, preliminary data

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

No

Yes

Yes

Yes, preliminary estimate




No

Yes, ±30%


manuals ±30%

No, preliminary data

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, quote

Yes, quote

Yes, quote

Yes, quote

Yes, quote

Yes, ±15%

Yes, from vendor quotes and

take-offs ±15%

90




CATEGORY CONCEPTUAL


INFRASTRUCTURE

Industrial Infrastructure Facilities

Facilities list

Power and water parameters

Full site plan

Social Infrastructure Facilities

Facilities list

Housing

Schools

Hospitals

Other

Infrastructure Capital and Operating Cost Estimates

Consumables list

Personnel list

Infrastructure operating cost estimates

Infrastructure capital cost estimates

Yes, with minimum detail

Yes, preliminary

No

Yes, with minimum detail

No

No

No

No

No

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

Yes

Yes

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes

Yes

Yes, ±30%


manuals ±30%

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, ±15%

Yes, from vendor quotes &

take-offs ±15%

MANAGEMENT, LABOR & ADMINISTRATION

Personnel

Personnel lists

Training requirements

Personnel Capital & Operating Cost Estimates

Consumables list

Personnel operating cost estimates

Personnel capital cost

No

No

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

No

Yes, ±30%

Yes, ±30%

Yes

Yes

•Yes

Yes, ±15%

Yes, ±15%

91




CATEGORY

CONCEPTUAL

STUDY/SCOPING STUDY

PRE-FEASIBILITY STUDY FEASIBILITY STUDY

MARKETS, PRODUCTS AND SALES

Markets, Products and Sales

Products

Volume

Prices

Sales organization

Sales Related Capital and Operating Cost Estimates

Personnel list

Consumables list

Sales related operating cost estimates

Sales related capital cost estimates

Yes, preliminary

Yes, preliminary

Yes, preliminary

No

No

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

Yes

Yes, preliminary

Yes

No

Yes, ±30%

Yes, ±30%

Yes

Yes

Yes

Yes, preliminary

Yes

No

Yes, ±15%

•Yes, ±15%

ENVIRONMENTAL AND PERMITTING

Environmental

Permit list

Environmental Impacts

Environmental Compliance Cost Estimates

Personnel list

Environmental related operating cost estimates

Environmental related capital cost estimates

No

Yes, preliminary

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

Yes

Yes, ±30%

Yes, ±30%

Yes

Yes

Yes

Yes, ±15%

Yes, ±15%

92




CATEGORY CONCEPTUAL


DEVELOPMENT SCHEDULE AND COSTS

Development Schedule

Development methodology

Development schedule

Development Costs

Personnel list

Development related operating cost estimates

Development related capital cost estimates

•Yes, preliminary

Yes, preliminary

No

No

No

•Yes

Yes

Yes

Yes, ±30%

Yes, ±30%

•Yes

Yes

Yes

Yes, ±15%

Yes, from vendor quotes &

take-offs ±15%

PROJECT ECONOMICS

Financial Issues

Taxes

Royalties

Fees

Licenses

Economic Issues

Economic parameters

Discount rate determination

Cash flows

Investor returns

Debt analysis

1.Sensitivities

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

No

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes, preliminary

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

93




CATEGORY CONCEPTUAL


SUMMARY AND RECOMMENDATIONS

Operational Parameters

Title and ownership

Geology

Ore reserves

Mining and processing rates

Development period and mine life

Metal/mineral recoveries

Sales

Operating cost estimates

Capital cost estimates

Financial Parameters

Cash Flows

NPV, IRR, and ROI

Mostly assumed and factored

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Some engineering basis

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Some engineering basis

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

94

Economy & Finance

Challenges, Risks & Opportunities For the Mining Industry in the Americas