State of the Market Mining and Finance Report by IntierraRMG - Edition 1 2013

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State of the Market Mining and Finance Report by IntierraRMG - Edition 1 2013

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The State of the Market: Mining and Finance Report details the state and outlook of the mining industry focusing on data-driven trends in exploration, metals production, mining and finance. The report ...

The State of the Market: Mining and Finance Report details the state and outlook of the mining industry focusing on data-driven trends in exploration, metals production, mining and finance. The report series provides data and opinion on the closed quarter, plus forward views on the upcoming period.

Contributors include Professor Magnus Ericsson and Dr. Chris Hinde.

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  • 1. Edition 1, 2013 State of the Market: Mining and Finance Report Expert review of all aspects of the industry, recent performance and quarterly outlook
  • 2. ContentsHinde Sight 03Market for Mining 04Exploration Hot Spots 06Assay Share Price Alert 10Metals Production Outlook 11Mergers and Acquisitions 15Mining Finance 16Special Report: Overview of 2012 18Special Report: Mining Royalties and Taxation 24STATE OF THE MARKET: MINING AND FINANCE REPORT Report is published by CONTRIBUTORS IntierraRMG IntierraRMG Pty Ltd Åsa Borssén Abbey House, 5th Floor Rovino Chaudhary 74-76 St John Street Contact Alexander Elving London, EC1M 4DZ Chris Hinde Magnus Ericsson Tel: +44 (0)20 7780 7470 Editorial Director Stuart Ferguson Website: www.intierraRMG.com Email: chris.hinde@intierraRMG.com Noxy Hatungimana Chris Hinde Kelly Chan Viktoriya Larsson Marketing Manager Olof Löf Email: miningreports@intierraRMG.com Jeremy ThompsonThis report is supplied on a confidential basis for the subscribers use only. The contents must not be disclosed to third parties and it must notbe copied in whole or in part without the prior written permission of IntierraRMG Pty Limited. Photocopying and electronic forwarding prohibited.Copyright 2013 IntierraRMG.Edition 1, 2013 State of the Market: Mining and Finance Report 02
  • 3. Hinde SightResource-stock investors and city financiers have been risk averse for a few years but suddenly it is the turn of the mining CEOsIf the abnormal (and still not complete) Glencore-Xstrata The bulk of the write down was the US$10-11 billiontransaction is excluded, there were only US$46.0 billion impairment of the company’s aluminium assets, mostof mining deals announced last year. The value of these of which were acquired with the US$38 billion298 deals contrasts with the US$98.9 billion announced purchase of Alcan (a deal that was finally completedin 2011. in November 2007, coinciding almost precisely with Despite this worrying shortfall, there are signs that, a peak in aluminium prices). The latest write-downat last, the supporting finance is becoming easier. brings the total reduction in the carried value ofFunds raised by mining companies in the quarter to Alcan’s assets to almost US$28 billion.end-December rose to US$6.8 billion, compared with However, Mr Albanese can’t reasonably be blamedonly US$5.5 billion in the September quarter, and this for the Alcan debacle as the acquisition came veryrepresented a welcome increase on the monies raised early in his tenure, which started in May 2007. Whatin the final quarter of 2011 (see p16). sealed his departure was the scarcely credible US$3 In its forecast for 2013, IntierraRMG expects billion charge against the company’s coal assets inmergers and acquisitions to gather steam, with Mozambique. This prize was acquired for US$3.7cash-rich companies targeting juniors. Meanwhile, billion less than two years ago.the on-going weakness in traditional debt-equity Mr Albanese’s demise signals the start of what will bemarkets will fuel ever more imaginative methods a period of remarkable change at the top of the miningof financing. industry. The boss of Anglo American, Cynthia Carroll, The targets will need to be low risk, however, with is leaving in April (to be replaced by AngloGold Ashanti’schief executives feeling the heat from over-valued Mark Cutifani), Mick Davis is due to leave Xstrata sixassets in previous periods of takeover activity. For months after it merges with Glencore, and BHP Billitonthe past few years it has been the CEOs at junior is looking to replace Marius Kloppers.companies that have been the subject of most The new executives will be taking the reins at asympathy. Suddenly, it is executives who sit at the challenging time for the industry, with volatile metalssharp end of planes that are under pressure, and four prices, increased political attention and widespreadof the leading mining companies are in the process of unrest amongst stakeholders. There is particularchanging their leaders. disquiet amongst employees, with strikes being Rio Tinto recently announced an US$14 billion asset triggered by industry-wide cost-cutting measureswrite down in its aluminium and coal divisions (two that include swingeing redundancies.days after announcing record iron-ore production). The leading mining companies will stick with whatThe write down in balance sheet value is equivalent to they know best, and that means a continued focus ona shocking 13% of the Anglo-Australian company’s iron ore, copper and coal. However, the real test of themarket capitalisation, and the Board announced that incoming CEOs will be how they reposition theirchief executive Tom Albanese was resigning with companies to the new operating conditions. They will,immediate effect, and by “mutual consent”. surely, be more careful on valuing deals. Gold prices (US$/oz) Copper prices (US$/t) 1,900 10,300 1,800 9,800 1,700 9,300 1,600 8,800 1,500 8,300 1,400 7,800 1,300 7,300 1,200 6,800 Jan 2011 Dec 2012 Jan 2011 Dec 2012 Iron ore prices* (US$/t) Coal prices* (US$/t) 180 * 62% Fe CIF China 150 * Australian thermal coal, 170 (12,000btu/lb, under 1% sulphur, 14% ash, 140 FOB Newcastle/Port Kembla) 160 130 150 120 140 130 110 120 100 110 90 100 80 Jan 2011 Dec 2012 Jan 2011 Dec 2012Edition 1, 2013 State of the Market: Mining and Finance Report 03
  • 4. 15% offState of the Market Reports Annual Subscription (4 editions) For limited time only. Exploration Mining FinanceThe State of the Market Reports detail the state and outlook of the mining industry focusing on data-driven trends inexploration, metals production, mining and finance. The report series provides data and opinion on the closed quarter,plus forward views on the upcoming period. Contributors include Professor Magnus Ericsson and Dr. Chris Hinde.State of the Market: Mining and Finance Report Subscription promo price: USD3,060 + Tax Each quarterly issue includes: ► Market for Mining ► Exploration Hot Spots ► Mergers and Acquisitions ► Exploration Results ► Mining Finance ► Assay Highlights ► Product Updates ► Special Features Upcoming Special Features • Overview of the mining industry in 2012 • Mining royalties and taxation • Special Coverage: Cash cost data • Mid-year examination of the world’s metals stockpiles Usual price: USD3,600 + local tax • Mining methods, and technology developments and trends • Metal prices, grade and tonnage predictions for 2014 For limited time only!State of the Market: Exploration Report Subscription promo price: USD1,360 +Tax This quarterly report focuses specifically on exploration activities and trends for the previous and upcoming quarters. It includes data and opinion on exploration hot spots, drilling activity trends and exploration financing. Each quarterly issue includes: ► Driller’s Log ► Feasibility Studies ► Capital Raising for Exploration ► Exploration Hot Spots and Results ► Assay Share Price Alert Usual price: USD1,600 + local tax To download a free report sample, visit: www.intierraRMG.com For limited time only. To subscribe, e: miningreports@intierraRMG.comwww.intierraRMG.com
  • 5. Market for Mining The world’s economies have continued to drift but we expect the mining sector to start its recovery this yearThe world economy continued to drift last year, until March, and the country could still suffer a serieswith global growth falling to 2.3% from 3.8% in 2011 of mini crises this year. The growth rate for the US is(and 5.1% in 2010). The malaise was worst in the predicted to fall to 1.9% in 2013 from 2.2% in 2012.‘advanced’ economies, which grew by only 1.3% lastyear, from 1.6% in 2011. Unfortunately, the emerging, European hopedeveloping, countries also recorded one of their Even though unemployment in the euro area rose toweakest economic growth rates in ten years, with an a new high in November 2012, the December quarteroverall increase of only 5.1% in 2012. was generally positive. The European Central Bank The lacklustre economic performance was attributed (ECB) renewed its bond-purchase programme, whichto uncertainty in Europe and the economic slowdown restored confidence in the financial markets andin China, where the growth rate dropped from 9.3% in bought time for political leaders. Also, the decision2011 to 7.9% in 2012. This decline in GDP growth is of the German Constitutional Court that theattributed to a shift away from intensive government’s ‘euro-rescue’ strategy was within themanufacturing and capital investments, toward German constitution (given certain restrictions),expenditure in the service sector (and intangible assets removed uncertainty about the future of thesuch as human capital). rescue mechanism. In spite of these disappointments, a better overall ECB’s chief, Mario Draghi recently gave positiveoutcome is projected for 2013. We anticipate an views on the state of the European economy, andimprovement in China’s economic growth, the believes that the euro area is showing “early signs ofrestoration of fiscal authority in the US, and improvement”, and should grow modestly by the enda stronger euro zone. of 2013. Elsewhere, the Dutch elections resulted in a stable pro-euro coalition.Fiscal cliff avoided The likelihood of a serious crisis of confidence in theIn the quarter to end-December, the US continued to euro zone has fallen considerably in the past quarter.suffer weak economic and employment growth, However, country-level finances are still vulnerable,declining labour-force participation and shrinking real with some countries facing being frozen out of theincomes. Moreover, the US trade deficit unexpectedly capital markets.grew in November, driven by an increase in imports of The euro zone is expected to grow by only 0.3% inconsumer goods. 2013, and just 1.4% in 2014. There was some good news from the US, of course,with the White House and Congress finally reaching an Emerging countriesagreement on the Federal Budget. This avoided In the quarter to end-December, leadership issuestriggering the so-called ‘fiscal cliff’, which would have were settled in China but very little is known about thebeen the culmination of a series of increasingly new leaders’ attitudes. Which form of economiccontentious fiscal showdowns between the country’s growth the new leadership chooses will be seen fromDemocratic and Republican parties over the past their GDP targets (to be announced in February). If thefew years. growth target remains at 7.5%, or above, then more Despite the deal, there is still no sign of a pro-growth policies can be expected. If the growthcomprehensive, long-term, deal on deficit reduction, target is lowered to 7%, say, then the Chineseand the US debt remains unsustainable. The Obama government may initiate a more gradual transition ofAdministration has simply delayed the tough decisions the economy. GDP Growth (%) Five-year metals prices (US$/t)8 35,000 Ni Cu (right scale) 10,500 Aluminium (right scale)7 30,000 9,0006 25,000 7,500 World5 20,000 6,0004 Advanced economies 15,000 4,5003 Emerging and 10,000 3,0002 developing countries1 5,000 1,5000 0 0 2010 2011 2012 2013f 2008 2009 2010 2011 2012Edition 1, 2013 State of the Market: Mining and Finance Report 04
  • 6. Meanwhile, the December quarter saw China’s Metals Price ForecastGDP rise 7.8% (on an annualised basis), comparedwith 9.3% in the final quarter of 2011.The value of Raw Materials Group (RMG) expects expansionaryChina’s exports grew 14.1%, compared with a year measures by the European Union and the US in 2013.earlier (nearly three times as fast as expected), and The world’s Central Banks are also likely to stimulatewere led by shipments to the US. growth, and will seek to avoid deflation. Moreover, Chinese imports rose to 6% in the December the new political leaders in China are likely toquarter, partly because of an 11% jump in iron-ore announce new measures to stimulate their economy.imports as steel production rebounded. However, With a growing risk of inflation, and a debasementwith China’s imports having grown at a rate less of currencies, RMG expects a modest increase in thethan half as fast as its exports, China did not quite gold price this year to an average of US$1,850/oz,serve as the ‘locomotive’ to pull the rest of the before slipping to US$1,800/oz in 2014.world out of recession. RMG expects the price of iron ore (62% Fe CIF The main driver of global growth recently has China) to average US$125/t this year and US$120/tbeen the world’s developing countries but their in 2014.growth has also slowed down considerably. For the other major metals, RMG expects higherEconomic growth in both the emerging and average prices this year (compared with last year’sdeveloping countries seems likely to be averages) for aluminium, nickel and zinc, but a loweranaemic this year. year-on-year average for copper (see table). Nevertheless, generally improving financial Major Metals Marketconditions, as well as a loosening of monetary 2012 2013f 2014fpolicy, should generate a slow improvement over Aluminiumthe course of 2013. Emerging and developing Output (Mt) 46.86 50.79 54.49countries are expected to grow by 5.5% in 2013. Use (Mt) 46.69 50.08 53.48 Balance (kt) 190 746 1,121 Price (US$/t) 2,018 2,205 2,150Metal Price Implications CopperMost base metals started 2012 on a positive note Output (Mt) 20.11 20.91 21.75but this optimism proved to be short lived as prices Use (Mt) 20.06 20.74 21.40fell progressively through the year. This was due to Balance (kt) 49 166 338the slow growth rate in the global economy, Price (US$/t) 7,950 7,874 6,539 Nickelsluggish demand from China, high stocks for most Output (Mt) 1.72 1.81 1.94metals and an increase in the supply of some Use (Mt) 1.67 1.76 1.88commodities. Balance (kt) 43 48 56 Nickel prices rose modestly in early 2012 but Price (US$/t) 17,527 17,670 18,385 Zincsubsequently fell back because of a weak market Output (Mt) 13.16 13.71 14.22for stainless steel (the end use of more than Use (Mt) 12.86 13.48 13.92two-thirds of nickel production), while copper Balance (kt) 291 233 298prices fell initially on declining imports from China. Price (US$/t) 1,946 2,020 2,265The hitherto relatively high copper prices have also The prices of nickel and zinc are expected toled to the substitution of copper in a variety of continue rising in 2014, while copper will continue itsuses, and to increased rates of recycling and downward trend. Aluminium’s performance is likelyscrap recovery. to be lacklustre. Copper demand is expected to pick up this year, RMG tracks a weighted-average price of a basket ofwith an economic recovery in the euro zone nine metals (iron ore, copper, zinc, nickel, lead, gold,supporting demand driven by China and other silver, platinum and palladium), and this is shown inemerging Asian markets. The early signs are the chart below (with the average price in 2000encouraging, and copper prices hit their highest recalibrated to 100).level in more than two months in January after theUS lawmakers avoided the ‘fiscal cliff’. Metals price index Aluminium prices dropped below US$2,000/t 450in the second quarter of 2012, and touchedUS$1,918/t in the third quarter (near to the pre- 3002005 levels) due to the global metal-supply surplusand high stocks, but prices picked up again in the 150December quarter. We believe that the metal willcontinue to make ground in 2013 followinga rebound of the Chinese economy 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f(the country accounts for almost half of globalmetal consumption).Edition 1, 2013 State of the Market: Mining and Finance Report 05
  • 7. Exploration Hot SpotsThere is hope, at last, for the mining sector despite a new low in exploration activityLast month’s exploration activity represented the with 64 (94) in Australasia, 33 (23) in Africa andlowest monthly total since February 2010, and meant 28 (36) in South America.that the number of drilling reports has fallen for three These targets are illustrated geographically in theconsecutive months. ‘Activity Map’ opposite. According to IntierraRMG’s on-line database, Measuring the drilling reports in terms of theIntierraLive, there was drilling reports from a total of primary-listing location of the company making the356 prospects in December 2012 (this total includes announcement, it is clear that Canadian companiesreports from more than one drilling prospect per are in the ascendancy.project), compared with 675 in December 2011. Companies listed on the Toronto Stock Exchange There has been a particular slump in drilling at gold (TSX) and TSX-Venture Exchange (together the TMX)prospects, with only 155 being reported in December, accounted for 53% of the 238 copper reports in thecompared with the recent peak of 493 in November quarter just ended, and 60% of the 702 gold-drilling2011; see chart on p7. (Note that the sum of the reports. Companies listed on the Australian Stockthree one-month amounts in any quarter will be Exchange (ASX) accounted for 43% of the copper, andconsiderably greater than the consolidated three- 29% of the gold, reports. Companies listed on themonthly project total shown in the drilling activity London Stock Exchange and AIM (together abbreviatedchart on p7, because of multiple reports of drilling here as LSE) hardly featured for either metal.from the same prospect, during the period.) For copper, the year-ago proportions were 48% and The slump in drilling reports over the past few 47% for TMX and ASX, respectively, and 55% and 31%months left the total for calendar 2012 well behind for gold drilling.the number recorded in 2011, but still well ahead of TMX-listed companies also dominated the drillingthe industry’s nadir in 2010. reports for lead, silver and zinc; see tables opposite.Gold dominates Slump in Reported ResourcesAs normal, the search for gold dominated the reports of Not surprisingly, the decline in drilling announcementsdrilling activity during the quarter to end-December, with during the past three months had a knock-on effecta total of 702 prospects (1,111 in the final quarter of on the announcement of mineral resources and ore2011). The next most significant exploration targets (in reserves (see tables on p9).terms of individual drilling prospects) were copper (238), Contained gold in mineral resources announcedsilver (174) and zinc (72); see tables opposite. during the December quarter were little changed from Canada led the way in the gold sector, with 192 the September quarter at 79.4Moz. This represents aprospects reporting drilling activity, followed by 114 slump, however, compared with the year-ago period,in Australia and 52 in the US. However, these numbers when announced resources contained 232.4Moz.are dramatically lower than the year-ago period, when The shortfall in gold resources came mainly in thethe figures were 279, 218 and 88, respectively, for the US (down from 35.0Moz to 6.9Moz) and in Canadathree countries. Indeed, drilling activity for gold in the (42.5Moz to 20.8Moz). Together with a shortfall inwhole of North and Central America has fallen from Mexico, this meant announced gold resources in North443 in the final three months of 2011 to just 299 in and Central America had fallen two-thirds between thethe quarter just ended. December quarters of 2011 and 2012. The next most important region for gold-drilling There was a similar slump in announced goldactivity in the December quarter was Australasia reserves, which fell to 15.7Moz (contained metal) in(with reports from 116 projects), followed by Africa the quarter just ended, compared with 78.2Moz a year(108) and South America (88). Nevertheless, ago. The damage was caused by massive reductions inAustralasia has seen a particularly sharp decline in the Americas and Africa.gold exploration, with drilling reports falling 47% The picture was scarcely any better for copper.since the year‑ago quarter. Resources reported in the December quarter contained Australia remains the leading exploration destination just 22.3Mt, comparing favourably with 16.7Mt in thefor copper, with 64 prospects reporting drilling September quarter but well down on the 107.4Mtactivity during the quarter just ended. This total is reported a year ago.sharply lower, however, than the year ago figure (94), The reporting of new copper resources collapsedand leaves the country only just ahead of Canada (60 across the globe, with the contained metal in Southin the December quarter, and 66 a year ago). American falling from 63.1Mt a year ago to 12.5Mt in Copper exploration has also fallen sharply in the US, the period just ended.with just 18 prospects reporting drilling during the Copper reserves were little changed from thefinal quarter of 2012, compared with 29 reports in the previous quarter (5.2Mt, compared with 6.2Mt in theyear-ago period. September quarter) but were dramatically lower than a Nevertheless, North and Central America again led year ago (35.2Mt). Most of the damage was fromthe way in the search for the metal, with a total of 90 exploration projects in South America.reports during the quarter (113 a year ago), compared There was a similar story for other metals.Edition 1, 2013 State of the Market: Mining and Finance Report 06
  • 8. Quarterly Drilling Reports (Individual Prospects) Dec Q Sep Q Dec Q Dec Q Sep Q Dec Q Dec Q Sep Q Dec QCopper 2012 2012 2011 Gold 2012 2012 2011 Lead 2012 2012 2011Canada 60 50 66 Canada 192 198 279 Canada 17 10 16Australia 64 83 94 Australia 114 209 218 Australia 11 17 14USA 18 17 29 USA 52 72 88 USA 4 3 6Mexico 7 8 16 Mexico 42 44 60 Mexico 5 7 19Brazil 2 4 7 Brazil 23 21 32 BrazilN&C America 90 83 113 N&C America 299 328 443 N&C America 26 20 41S. America 28 31 36 S. America 88 109 129 S. America 1 9 9Europe 10 21 10 Europe 37 49 35 Europe 2 4 5Africa 33 31 23 Africa 108 158 178 Africa 3 2 1Asia 13 28 40 Asia 54 57 106 Asia 5 9 5Australasia 64 83 94 Australasia 116 210 220 Australasia 11 17 14TSX/TSX-V* 127 140 151 TSX/TSX-V* 422 511 615 TSX/TSX-V* 27 31 44ASX* 103 128 147 ASX* 203 313 346 ASX* 17 23 24London* 4 2 4 London* 47 43 57 London* 3 3 3TOTAL 238 277 316 TOTAL 702 911 1111 TOTAL 48 61 75* Primary listing of issuing company * Primary listing of issuing company * Primary listing of issuing company Global DRILLING ACTIVITY Dec Q Sep Q Dec Q Silver 2012 2012 2011 Canada 39 31 56 Australia 18 23 22 USA 21 25 26 Mexico 47 48 67 Brazil N&C America 112 110 151 S. America 24 56 55 Europe 2 10 8 Africa 5 14 9 Asia 13 15 16 Australasia 18 23 22 TSX/TSX-V* 115 151 172 ASX* 28 40 49 London* 15 15 15 TOTAL 174 228 261 * Primary listing of issuing company Activity Map (December Quarter) Dec Q Sep Q Dec Q Zinc 2012 2012 2011 Canada 23 14 24 Australia 15 27 22 USA 6 5 9 Mexico 5 8 17 Brazil N&C America 37 29 50 S. America 6 15 9 Europe 4 7 7 Africa 5 2 3 Asia 5 9 7 Australasia 15 27 22 TSX/TSX-V* 44 39 52 ASX* 21 35 37 London* 2 4 3 Operational Development Exploration TOTAL 72 89 98 * Primary listing of issuing companyEdition 1, 2013 State of the Market: Mining and Finance Report 07
  • 9. Exploration ResultsSummary of the best assay results during the past quarter, and new resources/reservesTOP-RANKED ASSAYS (December quarter; grade x intersection) Grade Intersection DepthCOPPER Company Project Hole (%) (m) (m) Project Location 1 OZ Minerals Ltd Carrapateena DD12CAR090W1 0.90 1,492.0 609.0 65km E Woomera (Australia) 2 Blackthorn Resources Ltd Kitumba KITDD_005 3.02 220.0 206.0 180km WNW Lusaka (Zambia) 3 Atico Mining Corp El Roble ATDHR-17 5.41 88.7 71.8 75km SW Medellin (Colombia) 4 Africo Resources Ltd Kalukundi BH ANTD006 5.29 80.7 25.8 30km ENE Kolwezi (Congo DR) 5 Intrepid Mines Ltd Tumpangpitu Sulphide GTD-12-350 0.68 568.9 498.0 209km SE Surabaya (Indonesia) 6 CuDeco Ltd Rocklands Group NVB018 7.45 47.0 165.0 17km WNW Cloncurry (Australia) 7 Pilot Gold Inc TV Tower (Kucukdag) KCD056 6.96 46.7 102.7 20km SE Çanakkale (Turkey) 8 Reservoir Minerals Inc Brestovac-Metovnica (Chukaru) FMTC 1217 3.17 100.0 584.0 5km S Bor (Serbia) 9 NovaCopper Inc Bornite (South Reef Zone) DDH RC12-0216 4.45 55.7 671.0 65km ENE Ambler (US) 10 Peel Mining Ltd Mallee Bull MBDD009 3.48 69.0 533.0 105km SSE Cobar (Australia) Grade Intersection Depth GOLD Company Project Hole (g/t) (m) (m) Project Location 1 Pilot Gold Inc TV Tower (Kucukdag target) KCD-50 193.0 12.0 117.5 20km SE Çanakkale (Turkey) 2 ABM Resources NL Old Pirate (Golden Hind prospect) GHRC100014 44.0 42.0 0.0 625km NW Alice Springs (Australia) 3 Golden Rim Resources Ltd Balogo (Netiana) BDH012 111.0 13.0 56.0 105km S Ouagadougou (Burkina Faso) 4 Northquest Ltd Pistol Bay (Vickers) PB-12-22 8.2 156.5 87.0 60km SSW Rankin Inlet (Canada) 5 Gran Colombia Gold Corp Marmato MT-1500 1.6 618.1 394.0 85km S Medellin (Colombia) 6 Pretium Resources Inc Brucejack (Valley of the Kings) SU-584 187.0 4.7 135.8 240km N Prince Rupert (Canada) 7 Atna Resources Ltd Pinson PRC-12-006 47.4 18.3 1.5 42km ENE Winnemucca (US) 8 Unity Mining Ltd Henty (Read zone) Z18553 269.0 3.1 105.7 30km N Queenstown (Australia) 9 Centerra Gold Inc Kumtor (SB zone) D1653 7.7 109.3 494.1 180km SSE Almaty (Kyrgyzstan) 10 Bralorne Gold Mines Ltd Bralorne-Pioneer UB12-015 386.0 2.1 163.7 74km N Whistler (Canada) Grade Intersection Depth LEAD Company Project Hole (%) (m) (m) Project Location 1 Eurasian Minerals Inc Balya (Hastanetepe) DB-81 13.80 18.0 33.0 28km WNW Balikesir (Turkey) 2 El Nino Ventures Inc Murray Brook MB-2012-138 4.58 45.4 179.6 56km WSW Bathurst (Canada) 3 Buchans Minerals Corp Lundberg-Engine House H-12-3475 1.34 134.8 59.5 15k E Buchans (Canada) 4 US Silver & Gold Inc Galena (Lead Zone) DH49-196 17.40 6.4 78.6 2km W Wallace (US) 5 Rathdowney Resources Ltd Olza OLZ-147 3.88 27.3 134.4 Near Zawiercie (Poland) 6 Balamara Resources Ltd Brskovo DH3-12 3.63 28.0 111.0 70km NNE Podgorica (Montenegro) 7 Silvercorp Metals Inc Ying/SGX (S7-1) ZK07AS7-103 41.50 2.2 203.6 120km SW Luoyang (China) 8 Golden Tag Resources Ltd San Diego SD-12-50W 0.55 152.7 818.8 50km SSW Torreon (Mexico) 9 MacPhersons Resources Ltd Nimbus East NBRC216 4.70 17.0 205.0 20km ESE Kalgoorlie (Australia) 10 Red Metal Ltd Maronan MRN12003B 4.79 15.9 1,228.0 155km ESE Mt Isa (Australia) Grade Intersection Depth SILVER Company Project Hole (g/t) (m) (m) Project Location 1 Sierra Metals Inc Promontorio (Cuerpo Oriente) B509 753.0 48.9 376.5 20km SSE Cuauhtemoc (Mexico) 2 Tahoe Resources Inc Escobal (East) 375 490.0 70.5 699.0 44km ESE Guatemala City (Guatemala) 3 Investigator Resources Ltd Peterlumbo PPDH023 2,591.0 10.0 165.0 165km W Port Augusta (Australia) 4 MacPhersons Resources Ltd Nimbus East NBRC216 896.0 28.0 200.0 20km ESE Kalgoorlie (Australia) 5 Brixton Metals Corp Thorn THN12-83 165.0 150.5 24.0 98km ENE Juneau (Canada) 6 Silver Standard Resources Inc Pirquitas (Cortaderas Breccia) DDH-250 206.0 120.8 76.0 207km NW San Salvador de Jujuy (Argentina) 7 GoGold Resources Inc San Diego (Chispa De Oro) GGS-056 87.0 194.3 31.2 110km SW Durango (Mexico) 8 Hecla Mining Co Greens Creek (South West Bench) GC3364 603.0 22.3 0.0 28km SW Juneau (US) 9 Focus Ventures Ltd El Reventon (Reventon Breccia) RC-08-8 71.3 155.4 13.7 55km NE Cosala (Mexico) 10 Hochschild Mining plc Arcata (Alexia) DDH400-S-12 984.0 9.3 0.0 75km NNW Cabanaconde (Peru) Grade Intersection Depth ZINC Company Project Hole (%) (m) (m) Project Location 1 Silver Standard Resources Inc Pirquitas (Cortaderas Breccia) DDH-250 5.0 120.8 76.0 207km NW San Salvador de Jujuy (Argentina) 2 Silver Bull Resources Inc Sierra Mojada (Shallow Silver Zone) T12116 13.9 40.4 0.0 190km N Gómez Palacio (Mexico) 3 MacPhersons Resources Ltd Nimbus East NBRC216 26.3 17.0 205.0 20km ESE Kalgoorlie (Australia) 4 Buchans Minerals Corp Lundberg-Engine House H-12-3475 3.1 134.8 59.5 15km E Buchans (Canada) 5 El Nino Ventures Inc Murray Brook MB-2012-138 8.5 45.4 179.6 56km WSW Bathurst (Canada) 6 Venturex Resources Ltd Sulphur Springs (copper/zinc mine) SSR002 19.4 11.0 174.0 112km SSE Port Hedland (Australia) 7 Golden Tag Resources Ltd San Diego SD-12-50W 1.4 152.7 818.8 50km SSW Torreon (Mexico) 8 Hecla Mining Co Greens Creek (South West Bench) GC3451 10.7 16.8 0.0 28km SW Juneau (US) 9 Cazaly Resources Ltd Mt Angelo North HCRC0005 2.8 62.0 24.0 35km WSW Halls Creek (Australia) 10 Imperial Metals Corp Ruddock Creek (V zone) RD-12-V38 24.0 6.4 175.3 100km NNW Revelstoke (Canada)Edition 1, 2013 State of the Market: Mining and Finance Report 08
  • 10. So, does the level of exploration activity, shown on activity might start rising again in the months ahead.p7, signal continued doom and gloom? Well, yes, and According to calculations by IntierraRMG, fundsno. Even allowing for the skewing effect of a few raised for exploration rose sharply in the quarter tolarge exploration results, the numbers are clearly end-December, reaching over US$3.4 billion. Thisawful. But they do not tell the whole picture. There contrasts with the paltry US$1.8 billion raised in thehas been a significant increase recently in funds September quarter and is 19% better than the finalraised for exploration, which suggests that drilling three months of 2011 (see p17).Quarterly Review of Reserves / Resources AnnouncementsGOLD RESOURCES (oz; contained metal) GOLD RESERVES (oz; contained metal) Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011Canada 20,811,907 16,972,667 42,486,655 Canada 5,751,064 7,161,921 5,508,473Australia 9,040,018 3,549,161 10,850,697 Australia 2,451,408 225,951 1,812,461USA 6,918,025 3,463,209 34,990,622 USA 664,142 24,557,733Mexico 106,346 316,357 5,950,056 Mexico 4,142,319 478,032Brazil 8,080,381 4,732,025 8,036,141 Brazil 2,370,125 855,155 2,051,849N&C America 28,875,291 21,378,822 84,217,187 N&C America 7,882,047 12,075,160 33,241,378S. America 21,612,522 9,340,498 35,515,569 S. America 2,370,125 1,706,712 19,929,943Europe 9,619,509 9,148,874 16,790,636 Europe 2,288,185 3,193,644Africa 4,272,516 18,037,167 49,498,731 Africa 1,192,458 2,988,933 15,084,165Asia 5,994,715 16,574,851 33,784,548 Asia 1,769,402 14,566,693 4,952,385Australasia 9,040,018 3,549,161 12,552,027 Australasia 2,451,408 225,951 1,812,461TOTAL 79,414,571 78,029,373 232,358,698 TOTAL 15,665,440 33,851,634 78,213,976COPPER RESOURCES (t; contained metal) COPPER RESERVES (t; contained metal) Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011Canada 344,842 358,759 5,633,152 Canada 2,541,972 943 1,548,578Australia 225,986 1,754,448 2,991,735 Australia 40,488 49,406 445,271USA 381,974 5,927,462 2,085,063 USA 109,864 698,208 358,809Mexico 1,090,298 4,832,905 Mexico 65,592Brazil 319,752 236,138 Brazil 444,449 75,787N&C America 726,816 7,510,007 12,694,538 N&C America 5,172,326 786,847 2,422,510S. America 12,545,239 1,263,608 63,097,753 S. America 670,049 23,168,430Europe 811,350 87,027 1,984,578 EuropeAfrica 4,933,456 737,029 14,210,886 Africa 26,000 83,200 1,631,417Asia 3,024,759 5,334,250 12,393,819 Asia 4,657,200 7,517,888Australasia 225,986 1,754,448 2,991,735 Australasia 40,488 49,406 445,271TOTAL 22,267,606 16,686,369 107,373,309 TOTAL 5,238,814 6,246,702 35,185,516SILVER RESOURCES (oz; contained metal) SILVER RESERVES (oz; contained metal) Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011Canada 59,960,804 45,326,851 86,131,090 Canada 52,063,691 1,919,488Australia 37,421,986 9,672,896 148,594,985 Australia 1,077,214 1,907,375 2,263,412USA 41,424,856 82,496,983 456,390,869 USA 17,574,792 105,952,706Mexico 37,160,251 379,747,649 446,601,438 Mexico 387,150,783 45,002,369 44,776,110Brazil 263,293 BrazilN&C America 139,809,216 514,125,635 1,016,688,374 N&C America 465,968,234 62,577,161 179,565,248S. America 113,629,100 62,203,594 525,615,929 S. America 8,240,753 145,811,332Europe 32,965,357 17,327,272 274,108,874 Europe 9,976,485 4,794,340Africa 33,808,951 16,798,475 16,236,029 Africa 752,649 5,462,092Asia 12,120,759 86,132,977 189,699,267 Asia 1,458,459 52,534,110Australasia 37,421,986 9,672,896 148,594,985 Australasia 1,077,214 1,907,375 2,263,412TOTAL 369,755,369 706,260,849 2,170,943,458 TOTAL 469,256,556 88,163,866 384,968,442ZINC RESOURCES (t; contained metal) ZINC RESERVES (t; contained metal) Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011Canada 336,111 969,705 7,543,713 CanadaAustralia 108,800 3,451 2,591,072 Australia 66,091 77,600USA 20,059 668,954 817,240 USA 60,735Mexico 76,360 2,121,228 1,203,944 Mexico 806,254 30,460Brazil BrazilN&C America 432,530 3,759,887 9,564,897 N&C America 806,254 107,703S. America 27,942 445,421 2,106,765 S. AmericaEurope 1,978,940 214,246 898,035 Europe 32,420Africa 2,106,290 591,939 316,124 Africa 579,600Asia 335,003 25,203 779,889 Asia 35,649Australasia 108,800 3,451 2,591,072 Australasia 66,091 77,600TOTAL 4,989,505 5,040,147 16,256,782 TOTAL 872,345 579,600 253,372Edition 1, 2013 State of the Market: Mining and Finance Report 09
  • 11. Assay Share-Price Alert Many of the drill intersections announced during the past quarter had significant share-price impactDespite the sharp reduction in drilling activity intersection was from surface) was 44g/t over 42m at(as reported) during the quarter just ended, there ABM Resources’ Old Pirate project in Australia.have been remarkable intersections during the past Some of the intersections announced during thefew months; and some have had an astonishing impact past quarter had a significant effect on the shareon share prices. price of the owners (see list below). Ten-day share- The ten top-ranked assays are shown in the tables price gains of over 60% were recorded by Neweraon p8 for each of five metals (simply measured by Resources and Greenpower Energy for their projectstaking the average grade multiplied by the intersection at Shanagan Uul and Mirboo, respectively. A furtherlength, and taking no account of depth). eight companies saw their share prices appreciate Top of the ranking for the copper assays during the by more than 25% in the ten days followingDecember quarter was a drill hole on OZ Minerals a drilling announcement.Carrapateena project in Australia, which returned Indicative of the lacklustre exploration activity (and0.90% Cu over 1,492m (at a depth of 609m). In second markets) in the final weeks of the year, only one of theplace was an assay at Blackthorn Resources Kitumba 28 instances of share prices rising over 12% (measuredproject in Zambia which yielded 3.02% Cu over 220m ten days after an exploration announcement) was in(at 206m). Ranked third was an 89m intersection December. There were 17 such share-price rises ingrading 5.41% Cu at Atico Mining’s El Roble project October and 10 in November. Indeed, even this onein Colombia. exploration share-price spike in December was by The top gold intersection during the December Newera, which had set the quarter’s record price gainquarter was Pilot Gold’s 193g/t, over 12m (at a depth during the previous month. Despite a share-priceof almost 118m) on its TV Tower project in Turkey (for retreat between the two drilling reports, Newera’sa grade-intersection value of 2,316m.g/t). In second share price doubled; demonstrating the abiding appealplace during the quarter (but noteworthy because the of junior stocks. Impact of Drilling Results on Share Prices (December Quarter) SHARE PRICE (US$) COMPANY NAME PROPERTY PRESS RELEASE FROM TO* GAIN (%) Newera Resources Ltd Shanagan Uul East November 0.021 0.035 66.7 Greenpower Energy Ltd Mirboo October 0.040 0.064 60.0 Aguia Resources Ltd Tres Estradas November 0.130 0.180 38.5 Indico Resources Ltd Maria Reyna October 0.180 0.240 33.3 Newera Resources Ltd Shanagan Uul East December 0.030 0.039 30.0 Cockatoo Coal Ltd Baralaba October 0.140 0.180 28.6 Marmota Energy Ltd Angel Wing October 0.072 0.090 25.0 Stellar Resources Ltd Heemskirk October 0.080 0.100 25.0 Foyson Resources Ltd New Britain November 0.008 0.010 25.0 Merah Resources Ltd Lawlers October 0.200 0.250 25.0 St George Mining Ltd East Laverton October 0.250 0.310 24.0 Navarre Minerals Ltd Bendigo North October 0.130 0.160 23.1 Atrum Coal NL Groundhog October 0.180 0.220 22.2 Hannans Reward Ltd Pahtohavare November 0.015 0.018 20.0 International Goldfields Ltd Latin October 0.027 0.032 18.5 Talga Resources Ltd Nunasvaara October 0.300 0.355 18.3 Blackthorn Resources Ltd Kitumba October 1.100 1.285 16.8 Kalgoorlie Mining Co Bullant October 0.006 0.007 16.7 Haranga Resources Ltd Bayantsogt November 0.155 0.180 16.1 Eagle Hill Exploration Corp Windfall Lake November 0.125 0.145 16.0 Monax Mining Ltd Punt Hill October 0.048 0.055 14.6 Northern Minerals Ltd Browns Range October 0.210 0.240 14.3 Shaw River Manganese Ltd Otjozondu November 0.014 0.016 14.3 Sirius Resources NL Nova October 2.180 2.480 13.8 Emmerson Resources Ltd Orlando November 0.120 0.135 12.5 International Goldfields Ltd Latin November 0.024 0.027 12.5 Latin Resources Ltd Mariela October 0.160 0.180 12.5 Eagle Hill Exploration Corp Windfall Lake November 0.125 0.140 12.0 Sirius Resources NL Nova October 2.180 2.430 11.5 * Share price ten days following assay announcementEdition 1, 2013 State of the Market: Mining and Finance Report 10
  • 12. Metals Production Outlook Emerging data indicates positive growth in global metals productionEarly production announcements for the three months (quarter-over-quarter) came at the massive Escondidato end-December (Q4) demonstrate positive growth in mine. Production there has benefited from the transitionmetals production, compared with results published to higher-grade ore feed, and the successful completionfor the September Quarter (Q3). of large-scale maintenance programmes to increase The weighted average of all announced Q4 concentrator throughput.production showed an 18% increase in gold output, In the gold sector, a number of North American anda 6% improvement in copper and 3% rise in iron-ore, African mines showed strong Q4 production increases.compared with production in the prior three-month For example, Goldcorps cornerstone mine, Red Lake,period. As indicated in the Region chart below, the ended the year with operational stability, a strongstrongest rises came in Africa and in Asia. The size of production result and newly-discovered mineralisedthe spike in Asian gold being partially due to Centerra zones. The latter hold the potential to contribute toGold’s announcements that they had overcome the production profile over the longer term.production delays at Kumtor. Most of last year was a challenge for Centerra Details of global production can only be confirmed Gold’s Kumtor operation in Kyrgyzstan, with extrememany months after the end of the relevant reporting weather, and low grades in the Central Pit, impactingperiod as production statistics are slow to be released on production. However the year ended strongly,by producers. Global mine production analysis is and their forecast is positive for 2013.therefore best done on an annualised basis. However, Two of the most significant Australian iron-oreviewing consolidated global tables of early production mines announced sharply higher production forannouncements each quarter does provide a more the December quarter, with strong results fromimmediate barometer of production results. Chichester Range and Yandi. The tables below list those mines that have already The result from Chichester Range contributed toannounced their production for the December quarter, Fortescue’s announcement that in December 2012and where this amount is more than 10% different from the companys operations had achieved an annualisedthe production in the September quarter. (Our net shipping rate of more than 100Mt/y. The resultfigures above include all early-reporting operations, from Yandi helped BHP Billiton to announce thatnot just those that have signalled the greatest changes.) its Western Australia Iron Ore (WAIO) division had Notable changes include operations in the copper delivered a 12th consecutive December half yearsector, where the biggest actual increase in production production and sales record. Commodity Regional Change Quarter on Quarter Copper Iron Ore Gold 100% 80% 60% 40% 20% 0% -20% -40% AFRICA ASIA AUSTRALIA EUROPE NORTH AMERICA SOUTH AMERICA (inc MEXICO)Edition 1, 2013 State of the Market: Mining and Finance Report 11
  • 13. Metals Production Outlook continuedEarly warning this year, and production for calendar 2013 isA prompt opinion of supply trends can also be gained anticipated to be 500,000-650,000oz.by assessing new mine openings during each quarter. Production at Rio Tinto’s Benga coal mine in The methodology used in this section of the report Mozambique’s Moatize Basin continues to ramp up.analyses data from those mines that have formally The company notes that work has been undertakenannounced initial metals production during the to expand capacity on the Sena railway line topreceding quarter. The actual metals output will eliminate a bottleneck in the system.naturally vary as the mines are in various stages of With no new iron-ore mines coming on streama ramp-up, so we monitor the ore reserves at these during the quarter to end-September, the recentnew mines. This provides a snapshot of the emerging start of production at Karara had a significantproduction potential. impact on the Q3-Q4 comparison table for newly One such mine is Barrick Gold’s 60%-owned Pueblo ‘introduced’ ore reserves. Similarly, there was aViejo gold mine in the Dominican Republic. Initial large jump in gold and silver deposits that haveproduction was announced during the December now reached development.quarter from an operation that is exploiting a The December quarter was also significant fordeposit containing 25.3Moz of gold. Subsequent magnetite, with the mid-November announcementannouncements indicate that ramp‑up to full by Gindalbie Metals Ltd that it had produced thecapacity is expected to occur in the second half of first magnetite concentrate from its Karara project. EARLY PRODUCTION ANNOUNCEMENTS: GOLD (oz) Company Q3,2012 Q4,2012 Rise / Fall Change (%) AFRICA Buzwagi African Barrick Gold plc 30,211 64,828 34,617 115 Sukari Centamin plc 60,922 85,543 24,621 40 Bogoso-Prestea Golden Star Resources Ltd 39,844 50,230 10,386 26 Kansanshi First Quantum Minerals Ltd 35,245 45,410 10,165 29 North Mara African Barrick Gold plc 53,120 63,235 10,115 19 Kalsaka Amara Mining plc 14,369 11,480 -2,889 20 ASIA Kumtor Centerra Gold Inc 23,786 189,438 165,652 696 Grasberg Freeport-McMoRan C&G 227,000 249,000 22,000 10 Lihir Newcrest Mining Ltd 129,311 147,126 17,815 14 Boroo Centerra Gold Inc 18,938 29,878 10,940 58 AUSTRALIA Boddington Newmont Mining Corp 167,000 216,000 49,000 29 Macraes OceanaGold Corp 36,874 58,872 21,998 60 Telfer Newcrest Mining Ltd 110,372 128,995 18,623 17 Pajingo Evolution Mining Ltd 15,651 24,340 8,689 56 Bronzewing Navigator Resources Ltd 20,368 17,431 -2,937 14 Edna May Evolution Mining Ltd 25,925 22,763 -3,162 12 EUROPE Berezitovy High River Gold Mines Ltd 33,241 37,100 3,859 12 NORTH AMERICA Red Lake Goldcorp Inc 121,200 168,100 46,900 39 Mulatos Alamos Gold Inc 43,500 67,800 24,300 56 Hycroft Allied Nevada Gold Corp 25,482 46,900 21,418 84 Porcupine Goldcorp Inc 53,100 74,100 21,000 40 Seabee Claude Resources Inc 15,073 12,760 -2,313 15 SOUTH AMERICA Sao Francisco Aura Minerals Inc 19,814 28,584 8,770 44 Andorinhas Troy Resources Ltd 9,975 8,056 -1,919 19 * announcements with change >10%Edition 1, 2013 State of the Market: Mining and Finance Report 12
  • 14. EARLY PRODUCTION ANNOUNCEMENTS: COPPER (t) Company Q3, 2012 Q4, 2012 Rise / Fall Change (%) AFRICA Palabora Palabora Mining Co 5,600 12,100 6,500 116 Guelb Moghrein First Quantum Minerals 8,656 11,038 2,382 28 Mowana African Copper plc 2,882 2,577 -305 11 ASIA Gedabek Anglo Asian Mining plc 132 116 -16 12 Cayeli Inmet Mining Corp 7,800 7,000 -800 10 AUSTRALIA Nifty Aditya Birla Minerals Ltd 11,075 13,800 2,725 25 Boddington Newmont Mining Corp 6,800 8,600 1,800 26 Cadia Valley Newcrest Mining Ltd 11,682 13,264 1,582 14 DeGrussa Sandfire Resources NL 21,181 16,392 -4,789 23 EUROPE Kevitsa First Quantum Minerals Ltd. 4,004 6,896 2,892 72 Aguablanca Lundin Mining Corp 697 1,563 866 124 Neves-Corvo Lundin Mining Corp 14,012 11,988 -2,024 14 NORTH AMERICA Bingham Canyon Rio Tinto Ltd 42,900 59,300 16,400 38 Safford Freeport-McMoRan C&G 17,000 21,000 4,000 24 Chino Freeport-McMoRan C&G 17,500 20,500 3,000 17 Pinto Valley BHP Billiton Ltd 1,200 1,700 500 42 Bolivar Sierra Metals Inc etc 668 981 313 47 Aranzazu Aura Minerals Inc 1,114 927 -187 17 Lockerby First Nickel Inc 650 450 -200 31 Troy Revett Minerals Inc 1,071 457 -614 57 Minto Capstone Mining Corp 5,241 4,069 -1,172 22 SOUTH AMERICA Escondida BHP Billiton Ltd 248,000 280,900 32,900 13 Spence BHP Billiton Ltd 34,900 40,900 6,000 17 Santa Rita Mirabela Nickel Ltd 1,704 1,507 -197 12 * announcements with change >10% EARLY PRODUCTION ANNOUNCEMENTS: Iron Ore (t) Company Q3,2012 Q4,2012 Rise / Fall Change (%) AFRICA Kolomela Kumba Iron Ore Ltd 2,500,000 2,793,000 293,000 12 Marampa London Mining plc 373,000 546,000 173,000 46 Thabazimbi Kumba Iron Ore Ltd 241,000 182,000 -59,000 24 Sishen Kumba Iron Ore Ltd 9,756,000 6,038,000 -3,718,000 38 AUSTRALIA Chichester Range Fortescue Metals Group 15,400,000 19,100,000 3,700,000 24 Yandi BHP Billiton Ltd 16,201,000 18,769,000 2,568,000 16 Tallering Peak Mount Gibson Iron Ltd 504,000 672,000 168,000 33 Koolan Island Mount Gibson Iron Ltd 793,000 913,000 120,000 15 Karara (DSO) Gindalbie Metals Ltd 350,000 406,000 56,000 16 Goldsworthy JV BHP Billiton Ltd 508,000 445,000 -63,000 12 West Angelas Rio Tinto Ltd 8,037,000 7,183,000 -854,000 11 James Labrador Iron Mines Holdings 1,141,000 327,000 -814,000 71 * announcements with change >10%Edition 1, 2013 State of the Market: Mining and Finance Report 13
  • 15. Identify Trends and Opportunities Develop your strategic business options with IntierraRMG IntierraRMG databases are the world’s premier tools for evaluating trends and opportunities in the mining sector. AngloGold Ashanti Limited Covers global leases, 90,000 companies, 4,100 listed companies, “We value the depth and breadth of 50,000 global projects and 190 commodities. IntierraRMG’s global data coverage. The integrity of information is highly Benchmark projects by searching, filtering, exporting and ranking regarded. The source documentation across key classes of data. links are extremely useful.” ► Equity Interests ► Resource and Reserves Data Greg Foulis ► Production Data ► Financial Ratios Senior VP Business Development ► Capital Raisings ► Property Transactions AngloGold Ashanti Limited ► Feasibility Reports ► Mergers & Acquisitions ► Financial Reports ► Drill Holes Results ► Mine Cash Costs ► Refineries, Smelters and Plants Contact: Advanced online mapping enables in-depth investigation of projects and marketing@intierraRMG.com properties; displaying data on ownership, infrastructure and geology. www.intierraRMG.com Global Cash Cost Data Assess, benchmark and budget by individual mine or company. • ANALYSE, EVALUATE & BENCHMARK Voisey Bay • FORECAST & MODEL • COST MODELS & COST CURVES For enquiries: marketing@intierraRMG.com www.intierraRMG.comEdition 1, 2013 State of the Market: Mining and Finance Report 14
  • 16. Mergers and Acquisitions The December quarter saw a decline in the number of mining deals but the overall value increasedDeals in the mining industry during the December Metals M&A (2012)quarter were valued at just US$13.9 billion. Of the 50,000 90 Number of deals announced71 deals announced during the three-month period, 45,000 8033 were for gold assets (worth US$2.7 billion) and14 were for copper assets (worth US$7.1 billion). 40,000 70 Value of deals (US$ million)This brought deals announced during 2012 to 35,000 60US$80.0 billion, which includes the huge Glencore- 30,000Xstrata amalgamation, worth US$34.0 billion. Glencore/Xstrata 50 The 25% quarter-on-quarter increase in mergers and 25,000 40acquisitions (in value terms) during the three months to 20,000end-December was buoyed by First Quantum’s hostile 30 15,000 Firstoffer for Inmet Mining in December. However the number Quantum/Inmet 20of deals announced fell slightly (see chart on right). 10,000 AA Sur Copper and gold deals topped the list (in terms of 5,000 10value), with nickel in third place (ahead of iron ore). 0 0 Canadian companies led the way in the quarter just March Q June Q September Q December Qended, in terms of both value and the number of deals.Chinese overseas acquisitions (up a remarkable 60%quarter-on-quarter), primarily in lithium and copper,earned them second place, ahead of the UK, the US Metals: Deal Value (Dec Q 2012) 18%and Australia. 1% Copper Iron Ore 11% 51% Gold Other MINING DEALS Nickel 19% (December Quarter 2012) Value Deals Copper, Gold and Iron Ore (US$ million) (US$ million) (Number) 8,000 Copper 7,076.1 14 7,000 Gold 2,653.7 33 6,000 Nickel 1,487.0 1 Lithium 831.3 1 5,000 Copper PGMs 550.0 3 4,000 Gold Silver 532.9 4 3,000 Iron Ore Manganese 447.0 1 2,000 Iron Ore 226.8 8 Other 106.0 6 1,000 TOTAL 13,910.8 71 0 March Q June Q September Q December QLargest MINING Deals (December Quarter 2012) Main Share Value Object Buyer’s Seller’sAnnounced Status Object metal (%) (US$m) country Buyer country Seller countryDec Pending Inmet Mining Corp Copper 100.0 4,999.5 Canada First Quantum Minerals Canada n/aDec Pending Norilsk Nickel Nickel 5.9 1,487.0 Russia Millhouse LLC Russia UC Rusal RussiaOct Pending Discovery Metals Ltd Copper 88.3 844.5 Australia Cathay Fortune Corp China n/aDec Pending Talison Lithium Ltd Lithium 100.0 831.3 Australia Chengdu Tianqi Industry China n/aOct Closed Ocampo OP gold/silver mine Gold 100.0 735.2 Mexico Minera Frisco SAB de CV Mexico AuRico Gold CanadaDec Closed Camrose Resources Copper 49.5 550.0 UK ENRC UK n/aDec Pending Mimosa Holdings PGM 51.0 550.0 Zimbabwe Local investors Aquarius Plat AustraliaNov Closed Queenston Mining Inc Gold 100.0 539.2 Canada Osisko Mining Corp Canada n/aNov Pending Kalagadi manganese deposit Manganese 50.0 447.0 South Africa n/a ArcelorMittal UKEdition 1, 2013 State of the Market: Mining and Finance Report 15
  • 17. Mining Finance Hope, at last, as mining-sector financing rose in the December quarter, and there was an increased allocation for explorationThere are almost 3,500 companies in the international raising US$2.7 billion, and those on the London Stockmining industry (see table below), and the sector had a Exchange some US$1.0 billion; all measured in terms ofcombined market capitalisation of US$2,543 billion at the primary exchanges for each financing. The ASX’sthe end of the December quarter. performance was sharply lower than the year-ago The majority of these companies are small (1,756 period, when US$3.4 billion was raised.companies had a market capitalisation of under US$10 The relatively modest fund-raising by the largermillion at the end of December; see later), and only 20% companies (in comparison with their size) reflects anof the companies (681) had an end-year market ability to utilise cash flow from operating mines (acapitalisation of over US$100 million. luxury not available to the junior companies). It is also These largest companies accounted for 98% of the indicative of the larger companies’ substantial cashindustry’s overall market capitalisation, and 76% of the holdings at the end of the September quarter (estimatedmoney raised during the December quarter. Despite at US$252 billion, equivalent to over 96% of the industry’staking the lion’s share, the financing by these largest total cash holdings at that time) and also to a period ofcompanies represented just 0.2% of their collective restrained takeover activity (see table opposite).market capitalisation. With the softer commodity prices, the valuation of In contrast, the smallest companies in the industry smaller companies has weakened. This, in turn, has(50% of the total) raised less than 3% of the total made it difficult to finance projects by raising equityfinancing in the last quarter, equivalent to just through public offerings. The larger companies,US$102,000 for each company. Nevertheless, this meanwhile, have been quietly building up their cashfunding for the quarter was equivalent to 3% of the holdings; we expect increased takeover interest incollective end-year market capitalisation of the struggling juniors that have attractive projects.smallest companies. With funding scarce, many of these smaller (normally Property Pricingexploration) companies have entered a period of Cost inflation, slowing economic growth, increaseddormancy while they ride out the current weakness geopolitical risk and volatile prices have shiftedin debt and equity markets. The situation remains companies’ focus from growth to cost reduction, andespecially difficult for those with little prospect of this has affected the number of mining-propertyearly cash flow. transactions (see table opposite). Even those companies with metals production have The total sales value for gold property transactionsbeen battered by investors’ perceptions of disappointing fell to US$248.1 million in the quarter to end-revenue as metals prices fall, narrowing margins as costs December, compared with US$349.1 million in thecontinue to rise, and rising operating risk as social September quarter and US$361.2 million in thetension rise. year-ago period. At least, and at last, there are indications of easier There was a particularly sharp fall in Australia,money for the industry, with funds raised by mining where IntierraRMG registered an 80% slump incompanies rising to US$6.8 billion in the quarter to transactions for gold properties, from US$192 millionend-December, compared with US$5.5 billion in the in the September quarter to just US$39.2 million inSeptember quarter. This represented a welcome increase, the period just ended (although this is similar to thealbeit a small one, on the US$6.6 billion raised in the level of a year ago).final quarter of 2011(see table opposite). Gold-property transactions in North and Central Moreover, there has been a sharp improvement in the America remained at the relatively high level offunds raised for exploration. The search for minerals US$61.0 million, which was similar to the amountaccounted for half of the total financing during the spent in the September quarter. This represents aquarter just ended, compared with only 32% in the sharp increase on the modest gold-deal value ofSeptember quarter and a 44% share in the year-ago US$10.4 million in the final quarter of 2011.period. There was a significant quarter-on-quarter increase in Mining companies on the Australian Stock Exchange gold-property transactions in Asia, which accounted for(ASX) raised US$2.2 billion during the December quarter, 60% (US$147.9 million) of all such transactions in thewith those on the Toronto Stock Exchange (TSX) and December quarter, compared with only 6% (US$19.6TSX-Venture Exchange (abbreviated together as TMX) million) in the September quarter. The latest level is similar to that achieved in the final quarter of 2011 End-Quarter Average (US$234.5 million, representing 65% of the total). Company Size Number Market Cap Market Cap The total sales value for copper properties slumped (US$ million) Companies (US$ million) (US$ million) in the December quarter to US$92.3 million, compared <10 1,756 5,864 3.3 with US$378.1 million a year ago. This overall figure 10-49 817 19,539 23.9 included an 85% drop in the sales value for South 50-100 232 16,533 71.3 American copper properties (from US$351 million in >100 681 2,500,929 3,672.4 the final quarter of 2011 to US$53.5 million in the TOTAL 3,486 2,542,865 729.5 quarter just ended).Edition 1, 2013 State of the Market: Mining and Finance Report 16
  • 18. Funds Raised Cash Holdings Funds Raised (US$ million) Cash Holdings (US$ million) Q4, 2012 Q3, 2012 Q4, 2011 Q4, 2012 Q3, 2012 Q4, 2011Company Size (US$ million): <10 179 170 471 1,954 2,629 10-49 955 649 1,013 4,288 5,069 50-100 499 657 572 3,040 3,315 >100 5,137 4,066 4,497 252,277 253,514Primary Exchange: TSX/TSX-V 2,725 1,890 2,509 32,791 33,919 ASX 2,193 1,456 3,418 31,762 32,934 London 1,007 177 106 39,148 41,353 Other 843 2,020 521 157,860 156,322Company Type: Explorer 3,405 1,796 2,852 11,233 13,069 Producer 3,364 3,747 3,702 250,326 251,458TOTAL RAISED / CASH 6,768 5,542 6,553 261,559 264,527 There has been a similar decline in the value of valued at US$4.8 million in the quarter at extremelytransactions for coal properties, which was just low prices for insitu metal.US$23.2 million in the December quarter, compared However, summarising the price paid for metal in thewith US$390.7 million in the September quarter and ground is problematic, with huge variations fromUS$412.3 million in the December quarter a year ago. project to project depending upon the individualNoteworthy was a fall in the quarterly sales value for circumstances (deposit depth, geopolitical risk,coal properties in Australia from US$370 million a availability of infrastructure, etc).year ago to just US$18.2 million (although this still Although comparisons are invidious, the miningrepresents the bulk of global coal deals during the industry paid an average of US$36/oz for insitu goldpast quarter). resources during the December quarter, with the Australia also saw the value of iron-ore deals halve highest valuations being paid in Asia.from the last quarter of 2011 to the last quarter of Making sense of copper valuations in the past2012 (US$382.5 million to US$190.0 million). quarter was especially problematic, with dramaticallyHowever, the price paid for insitu resources in that different prices being paid in North America –country increased from less than USc1/dmtu (dry varying from an average of just US$12/t for insitumetric tonne unit; 1% Fe in a tonne of ore) to almost copper resources in Canada to an average ofUSc13/dmtu. Canada registered iron-ore purchases US$250/t in the US.Property Pricing (December Quarter)*GOLD COPPER IRON ORE COAL Sales Price Total Sales Value Sales Price Total Sales Value Sales Price (USc/ Total Sales Value Total Sales Value (US$/oz resources) (US$ million) (US$/t Cu resources) (US$ million) dmtu resources) (US$ million) (US$ million) Q4, Q3, Q4, Q4, Q3, Q4, Q4, Q3, Q4, Q4, Q3, Q4, Q4, Q3, Q4, Q4, Q3, Q4, Q4, Q3, Q4, 2012 2012 2011 2012 2012 2011 2012 2012 2011 2012 2012 2011 2012 2012 2011 2012 2012 2011 2012 2012 2011Canada 37.3 18.7 16.7 44.7 62.7 10.3 12.3 3.7 58.5 17.5 0.5 22.9 0.05 4.8 39.5Australia 40.2 39.4 38.5 39.2 192.0 37.5 12.90 0.51 190.0 382.5 18.2 181.9 370.0USA 11.5 7.0 17.0 16.3 4.1 0.1 250.1 1.6 29.1 21.2 1.0 1.9 201.4 2.8MexicoBrazil 14.5 9.7 0.10 30.2N&C America 23.3 16.9 16.7 61.0 66.8 10.4 25.7 1.9 54.3 38.8 1.4 24.9 0.05 0.26 4.8 6.9 201.4 42.3S. America 11.6 34.8 108.0 344.0 53.5 351.1 0.10 30.2EuropeAfrica 5.6 142.5 35.8 78.8 0.15 64.4 7.4Asia 50.0 1.9 33.1 147.9 19.6 234.5 11.7 2.2 0.67 55.1 5.0Australasia 28.2 39.4 38.5 39.2 192.0 37.5 12.90 0.51 190.0 382.5 18.2 181.9 370.0TOTAL 35.6 11.9 39.1 248.1 349.1 361.2 46.0 1.9 227.1 92.3 1.4 378.1 1.33 0.26 0.32 249.9 6.9 477.2 23.2 390.7 412.3* Geographical breakdown of properties sold (evaluated in terms of the total amount, and per unit of metal in the ground)Edition 1, 2013 State of the Market: Mining and Finance Report 17
  • 19. Special Report: Overview of 2012 Last year saw a slow-down in the pace of mine development, with fewer projects in the pipeline, but increased expenditureAs noted earlier in this report (see p16), the 3,486 brownfield developments, have seen the greatestcompanies in the mining industry had a combined investment growth. This is the result of miningmarket capitalisation of US$2,543 billion at the end of companies pushing for early production to benefitlast year, for an average corporate valuation of some from the still relatively high metals prices. The early-US$730 million. stage exploration projects have lost out, which might This rather bland statistic hides, however, a huge create pipeline problems in the future.variation in the structure of the industry. On the finaltrading day of 2012 there were just 681 mining Metals Choicecompanies (20% of the total) with individual market RMD shows that the investment market last yearcapitalisations of over US$100 million. These continued to be dominated by three metals: iron ore,companies were valued by the market at a combined copper and gold. Together these metals accounted forUS$2,501 billion (for an average market capitalisation 77% of the total project investment, amounting toof US$3.67 billion). US$570 billion (see chart p21). At the other extreme of the market, there were Iron-ore prices have risen recently after a decline1,756 companies (half of the total) that were each caused by concern over the Chinese economy, and thevalued at less than US$10 million. At the end of 2012 metal remained the most important investment targetthere were a further 817 companies valued at US$10- in 2012. Annual spending increased 14% to US$24549 million and 232 at US$50-100 million (the latter billion, leaving iron ore accounting for 33% of thecompanies had an average market capitalisation of industrys total metals investments. However, theUS$71 million). growth rate has fallen sharply compared with the 33% jump in annual iron-ore investment in 2011. M&A: Value and deals announced The average investment on the almost 1,300 120,000 500 projects in 2012 (slightly down on the total number Number 450 in 2011) rose 13% (on a year-on-year basis) to Value of deals (US$ million) 100,000 400 US$1.2 billion. 80,000 350 Investment in copper projects grew 12% last year 300 (16% in 2011), reaching US$200 billion. The number 60,000 250 of copper projects in the pipeline (which is similar to 200 those recorded in 2011) was higher than for iron ore 40,000 150 (see figure at bottom p20). Stable production growth 20,000 100 is forecast for the next two years. 50 0 0 Gold prices have remained robust during the 2011 2012 recession but investment in gold projects is relatively low. However, the physical number of projects remainsProject Pipeline very high (see figure) at 410, representing one-third ofLast year saw a slow-down in the hitherto fast pace of the total number of mining projects recorded on RMD.mine development. Investment in mining projects* The number of nickel projects fell slightly in 2012,grew 9% in 2012 to US$735 billion, after the growth of as did the total investment (see figure, p20). Nevertheless,20% in 2011 (see figure, p21). However, the total production of the metal remained high despite thenumber of projects in the pipeline fell 3% to under difficult market conditions. This is attributed to the1,300 (similar to the level of 2010). complication, and cost, of suspending advanced-stage *Note: The requirement for inclusion in nickel projects.IntierraRMGs Raw Materials Database (RMD) arethat a project must have either an estimated mineralresource or an estimate of capital expenditure. M&A: Value of deals announced (three major commodities) Several large projects have been put on hold, 50,000including BHP Billitons US$8 billion Olympic Dam 45,000 Value of deals (US$ million)expansion in Australia, and the Prioskolskoye iron-ore 40,000and Sukhoi Log gold projects in Russia. A number of 35,000uranium and nickel projects have also been postponed. 30,000 Figures from RMD show that the average project has 25,000become more expensive. This is attributed, especially, 20,000to an increase in the geological complexity of 15,000orebodies and to falling ore grades, making them more 10,000difficult to mine and beneficiate. There has also been 5,000an increase in the construction of supporting 0infrastructure, and greater costs associated with 2011 2012securing environmental and community agreements. Copper Gold Iron Ore The later project stages, for both greenfield andEdition 1, 2013 State of the Market: Mining and Finance Report 18
  • 20. Reduced Number of DealsLast year saw a sharp year-on-year drop in deal- Leading Countries (By Number of Deals; 2012)making activity, with the total being down almost 20%in value terms compared with 2011. This decline wasdespite inclusion of the proposed merger betweenGlencore and Xstrata (see figure opposite). Although the number of announced deals was on a 26% Australiapar with the previous year, the scarcity of mega-deals’ 34% Canada(defined as being those valued at over US$1 billion) Chinamade for a significantly lower average deal value (the USnotable exception is, of course, the Glencore-Xstrata UKtie-up, which is still pending). Copper, gold and iron ore were the most sought 4% 20% Otherafter metals, with the trio representing fully 76% of 5% 11%the total deal evaluation in 2012 (excludingGlencore‑Xstrata); see p21. Australia and Canada dominated deal-making lastyear, and, in terms of the number of deals that wereannounced, they accounted for almost half of the total.China trailed behind, in third place. While numerous, the Australian deals were smaller in Leading Countries (By Deal Value; 2012)value terms in 2012, compared with the previous year.Switzerland ranked first due almost entirely toGlencores imminent acquisition of Xstrata, althoughthere were also independent deals by both Glencoreand Xstrata. 25% Switzerland Indeed, Switzerland, Canada and China accounted Canadafor two thirds of the total deal-making activity last 46% Chinayear (by value), and the top five countries together 3% UKaccounted for three quarters of the total activity 5% Australia(see charts to right). Other Notable last year was China’s 60% drop year-on-year 7%in overseas deal-making. While copper, gold and iron 14%ore continued to be the focus of Chinese activity, boththe number and value of these deals declined.Largest Metals Deals Buyer’s Seller’s Share Object ValueAnnounced Status Buyer country Seller country (%) Object country Main metal (US$m) Feb Pending Glencore International Switzerland n/a 65.9 Xstrata Plc Switzerland Diversified 34,000.0 Dec Pending First Quantum Minerals Canada n/a 100.0 Inmet Mining Canada Copper 4,999.5 Aug Closed Codelco Chile Anglo American UK 25.4 Anglo American Sur Chile Copper 1,900.0 Feb Closed Rio Tinto UK BHP Billiton Australia 37.0 Richards Bay Minerals South Africa Mineral sands 1,900.0 Mar Closed Marubeni Japan Hancock Prospecting Australia 12.5 Roy Hill Iron Ore Deposit Australia Iron ore 1,526.3 Dec Pending Millhouse LLC Russia UC Rusal Russia 5.9 Norilsk Nickel Russia Nickel 1,487.0 Jan Closed Pan American Silver Canada n/a 100.0 Minefinders Canada Gold, Silver 1,470.4 Sep Closed Glencore International Switzerland n/a 18.9 Kazzinc LLP Kazakhstan Zinc 1,400.0 Jan Closed ENRC Kazakhstan First Quantum Minerals Canada 65.0 Congo Mineral Dev UK Copper 1,250.0 Sep Failed Noble Group Hong Kong n/a 100.0 Arrium Limited Australia Iron ore 1,221.0 Sep Pending B2Gold Corp Canada n/a 100.0 CGA Mining Ltd Australia Gold 1,078.3 Mar Closed Fonds Stratégique France Areva SA France 25.9 Eramet Group France Nickel, Manganese 1,004.0Edition 1, 2013 State of the Market: Mining and Finance Report 19
  • 21. Special Report: Overview of 2012 continued ANNUAL DEALS (By Commodity) DEAL SUMMARY (By Domicile of Acquiring Company; 2012) 2012* 2011 Value Deals Value Value US$ million (Number) (US$ million) Number (US$ million) Number Switzerland 36,590.8 11 Copper 15,033.0 50 48,307.9 50 Canada 11,514.5 59 Gold 14,035.0 142 15,229.2 124 China 5,696.1 32 Iron Ore 6,043.5 36 20,263.7 54 UK 3,877.7 13 Nickel 2,804.2 10 1,381.4 14 Australia 2,485.7 78 Zinc 1,446.3 7 6,715.3 15 South Africa 2,217.2 10 PGMs 1,224.9 2 598.1 6 Japan 1,908.7 4 Silver 716.8 4 456.6 10 Russia 1,575.1 5 REO 400.5 3 70.9 4 USA 1,184.3 14 Lead 4.1 3 105.2 5 India 561.6 4 Other# 4,336.8 41 5,722.0 13 Brazil 312.7 2 Glencore-Xstrata 34,000.0 1 Singapore 94.2 6 TOTAL 80,045.1 299 98,850.3 295.0 Other 12,026.5 61 * Includes the multi-commodity Glencore-Xstrata deal (listed separately), which is due to close in 2013. TOTAL 80,045.1 299 # Includes three lithium deals valued at a total of US$1.65 billion in 2012, and two niobium deals valued at US$3.9 billion in 2011. COMMODITY RANK (By Capital Expenditure on Advanced-stage Projects; US$ million) 2009 % 2010 % 2011 % 2012 % Fe 127,339 27 161,606 29 215,272 32 245,346 33 Cu 123,548 27 154,552 27 178,695 26 199,789 27 Au 75,373 16 83,102 15 111,486 17 125,372 17 Ni 64,716 14 68,572 12 63,793 9 59,830 8 U 15,126 3 21,994 4 25,168 4 24,545 3 Zn,Pb 13,974 3 16,081 3 18,014 3 16,756 2 Pt,Pd 13,214 3 15,146 3 16,250 2 16,242 2 Dia 8,202 2 6,977 1 8,177 1 8,438 1 Ag 4,517 1 9,246 2 7,166 1 8,072 1 Others 19,298 4 25,056 4 31,370 5 30,163 4 Total Capex 465,307 100 562,332 100 675,391 100 734,551 100 COMMODITY RANK (By Number of Advanced-stage Projects) 2009 % 2010 % 2011 % 2012 % Au 371 30 386 30 401 30 410 32 Cu 243 20 246 19 248 19 245 19 Fe 169 14 188 15 196 15 198 15 Zn,Pb 99 8 104 8 102 8 87 7 Ni 98 8 93 7 90 7 77 6 U 46 4 52 4 56 4 56 4 Ag 40 3 43 3 46 3 41 3 Pt,Pd 40 3 40 3 39 3 39 3 Dia 24 2 27 2 27 2 22 2 Others 91 7 107 8 115 9 107 8 Total number 1,221 100 1,286 100 1,320 100 1,282 100Edition 1, 2013 State of the Market: Mining and Finance Report 20
  • 22. Investments distribution by Metal (%) Fe 11 Cu 2 2 3 Au “RMD shows that the 4 investment market last year 33 Ni 8 continued to be dominated by Others three metals: iron ore, copper U and gold. Together these Zn,Pb metals accounted for 77% of 17 the total project investment, Pt,Pd amounting to US$570 billion.” Dia 27 Ag Mining project investments by Metal (US$ million) 300,000 250,000 200,000 150,000 2011 100,000 2012 50,000 0 Fe Cu Au Ni Others U Zn, Pb Pt, Pd Dia Ag Number of projects in pipeline 450 400 350 300 250 2011 200 150 2012 100 50 0 Fe Cu Au Ni Others U Zn, Pb Pt, Pd Dia AgEdition 1, 2013 State of the Market: Mining and Finance Report 21
  • 23. Special Report: Overview of 2012 continued Ten-year precious prices (US$/oz) Ten-year metals prices (US$/t) 2,500 50 Nickel Aluminium (right scale) Lead (right scale) Gold 60,000 45 Tin Copper (right scale) Zinc (right scale) 12,000 Silver (right scale) 2,000 Platinum 40 50,000 10,000 Palladium 35 1,500 30 40,000 8,000 25 30,000 6,000 1,000 20 15 20,000 4,000 500 10 5 10,000 2,000 0 0 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Social Turbulence consultation before mining development (the newLast year was not a quiet one but at least the world did law has been delayed, ironically, due to drawn outnot end on December 21, as predicted by the Mayans. consultations with indigenous communities). President Obama was re-elected in the US but there There has been more encouraging news fromwas a change of leadership in the world’s second most Colombia, which has been torn by internal conflictpowerful nation (China), and President Putin has for decades, with the government setting itself theresumed control in Russia (if he ever left it). The UN, goal of becoming a top producer of coal and goldmeanwhile, has been powerless to end the civil war by 2019. However, many of the indigenous peoples,in Syria, while Europe remains in crisis, the Chinese especially in the minerals-rich region of Guamocò,economic has slowed and unemployment remains are dissatisfied with the proposals. Complicatingan issue in the Western World. the picture in Colombia further are allegations that In the mining industry, there are big changes the rebel FARC organisation has been involved inunderway in the top jobs. An early New Year casualty illegal mining, and AngloGold Ashanti has beenhas been Tom Albanese, with the Rio Tinto boss falling accused of hiring paramilitaries to relocateon his sword (with the “mutual consent” of his Board) residents.over the companys huge asset write-offs. Anglo Africa holds enormous promise but much remainsAmerican’s Cynthia Carroll had already announced her to be delivered. For example, progress remains slowintention to leave (to be replaced by Mark Cutifani, at Vale SA’s Simandou iron-ore project in Guinea,currently head of AngloGold Ashanti), Mick Davis is set and the Brazilian company admitted in October thatto leave Xstrata (six months after the merger with development is “on hold” pending new regulations.Glencore International) and, to complete the set, BHP Nowhere has the continents social conflict beenBilliton has begun its search for a successor to Marius more pronounced than in South Africa. This came toKloppers (although no time frame for his departure has a head with violent clashes in September at Lonmin’sbeen disclosed). Back in June, Barrick Corp replaced its West Marikana platinum mine (after six weeks ofchief executive Aaron Regent with Jamie Sokalsky. unofficial strikes) which led to 45 miners being shot However, of greater long-term significance to the dead by police.industry is the social unrest that has blighted many The unrest spread to the countrys other mines,mining economies. It does not take a crystal ball to involving 85,000 employees, before the end of thepredict that community relations will be a key issue third quarter. In October, Anglo American Platinumin 2013. dismissed 12,000 striking workers at the Social conflict has been especially worrying in Africa Rustenburg mine.and South America. In the latter continent, there have It is not only in South America and Africa wherebeen particular difficulties in Peru, where there has there has been unrest. China has also sufferedbeen community unrest at, for example, Newmont protests, predominantly centred on environmentalMining’s 51%-owned Minas Conga project in complaints at coal mines.Cajamarca Region. Against this backdrop, the Chinese government has Barrick Gold, Xstrata, Southern Copper and Anglo moved to increase environmental protection. ChinasAmerican have also seen protests against their State Council announced in November that all majorprojects. This has impacted on inward investment, and, projects will have to undergo a social-risk assessment.according to the National Society of Mining, Petroleum All government agencies have been ordered to makeand Energy (SNMPE), this year’s planned expenditure in Environmental Impact Assessments.Peru has slumped from a previously announced US$6 Even the Nordic countries have not been sparedbillion to US$4 billion. from social unrest, with protests in both Sweden As a matter of urgency, the Peruvian Government and Finland from local communities againstis working on legislation that would require prior mining projects.Edition 1, 2013 State of the Market: Mining and Finance Report 22
  • 24. Corruption: Increased Operational Risk Five High Risk* Countries (NRI ranking)Transparency International has confirmed that mining Country CPIremains one of the most corrupt global industries, Congo DR 160and two surveys undertaken last year show a clear gap Guinea 154 Papua New Guinea 150between mining companies’ perception of corruption Venezuela 165and their preparedness to heed the risk. Zimbabwe 163 Moreover, according to a recent survey on * The operating environment presents persistent and serious challenges forbribery and corruption by Deloitte, nearly half of business. For example: Corruption is endemic across all levels of officialdom,the companies operating in high-risk offshore there are significant infrastructure deficiencies or regulations are onerous andjurisdictions have never conducted an assessment their implementation is capricious.on corruption risk. Some 40% of the respondents said Sources: Control Risks, Transparency Internationalthey were "not concerned" with the risks associatedwith non-compliance. Corporate advice The same finding was made by Ernst & Young in With regard to risk assessment, Transparencyits 11th Global Fraud Survey, where 42% of the International advises mining companies to “monitor,responding companies never, or very infrequently, evaluate and report” on a regular basis.conduct fraud and corruption risk assessments (postproject due-diligence). Companies are also advised to: According to World Economic Forums latest Global • Publish the findings (transparency is the first lineRisks Report, corruption is perceived as one of the of defence against corruption).most important geopolitical risks. It is also perceived • Commit to a Code of Conduct (on both an internalas one of the most interconnected risks; being linked and external basis), and provide employees withto global governance failure and major systemic practical guidance.financial failure. • Introduce third party due diligence that is independent. Corruption, and exposure to corruption, is also the • Build strong relationships with government andmost important factor in an assessment of operating other stakeholders.risk. This can be demonstrated by comparing five highoperational-risk countries with Transparency Meanwhile, companies are facing burgeoning globalInternational’s Corruption Perceptions Index (CPI); anti-corruption regulations (eg the Dodd-Frank Act insee table. the US that relates to the disclosure of payments by As with political risk, the national influence on resource companies).operational risk runs from insignificant (eg Norway Mining companies are clearly facing sharply higherand New Zealand) to extreme (eg the Kandahar region corruption-risk assessments, especially as they movein Afghanistan). into ever more unstable territories. HEAT MAPEdition 1, 2013 State of the Market: Mining and Finance Report 23
  • 25. Special Report: Mining Royalties and Taxation There is a balancing act, from the perspective of both the investing company and the host country, when negotiating the terms of mine developmentMining is a global business and there is competition 2. Stable regions, which do not have a large marketbetween the various mineral-prospective countries. share in mining, are moving towards marginalAs a result, investments flows are not only influenced increases in resource taxation (eg South Africa).by the geological potential of the host nation but by 3. Mainly developing countries, unable to offerthe risks associated with the project. This includes a reliably-stable business environment, arenot only national taxes and legislation but also local offering lower resource taxation (eg Kazakhstan).community attitudes and levels of corruption, etc. Given the long-term nature of a mining project and There are two broad categories of taxation regimethe size of initial expenditure (and which cannot later within the mining sector:be moved), the stability of the fiscal regime is of 1. Taxation based on incomeutmost importance. Income-based taxes are calculated on profit, or From a companys perspective, a higher political cash-flow, and are based on revenue net ofrisk can be off-set by an increased likelihood of finding qualifying costs. The latter can include royaltiesworld-class deposits. For that reason, a country with based on profits/income, corporate income tax,a long history of stable mining conditions is, of course, profit taxes on dividends, and withholding taxesa more attractive target for foreign direct investments on offshore repayments of debt and equity.(FDI) than a country with a limited (or poor) track record. 2. Taxation based on production FDI into relatively stable countries, such as Canada Production-based taxes include unit-basedand the US, are at present much higher than what is royalties, and charges on inputs and servicesto be expected given the existing size of the local (import duties and licensing or registration fees).mining industries. Also, Latin America remains much more attractive A mix of both types of regimes is commonly used,for mine development than Africa, in spite of the although differences in mix exist across regions. Thehigher probability of finding a new deposit in the latter major difference between the two categories is in thecontinent. This is simply because much less exploration timing of revenues to the state. Profit, or income-has been made in Africa, and the perceived risks for based, taxes will only be generated once mineinternational investors are higher. There are also other production starts, and even then may be delayed asfactors involved, with higher levels of corruption in mining companies will prefer to recuperate costs/Africa, and the scarcity of suitable infrastructure. losses that they incurred at the exploration andMoreover, the political stability, tax and royalty levels, development stage of the mining cycle.and free-carried state ownership are a disincentive Taxation on profits encourage risk sharing betweencompared with many Latin American countries. the company and the state, and take into account the fluctuations in global prices, changes in the geologicalTaxation measures and technical determinants of the mining operations All things being equal, any country should attract as well as financial and political factors over themining investment that is proportional to its mineral mining cycle. Effective taxation of profits is dependentprospectivity. If this investment is less, it implies on the capacity of the state to recognise (and enforce)faults in the investment climate, such as an excessive this risk sharing, and the associated rules are oftentax regime. However, if the investment is greater than not met in developing countries.would otherwise be expected, it suggests that the Taxes on production, without taking intoinvestment conditions may be overly generous. consideration profitability, can lead to economic From a national perspective, there has to be a disincentives, and can discourage the exploitationbalance between the income (direct and indirect) of low-grade ore for low-profit operations. Whilearising from mining, and the value of the metals production-based taxes ensure a minimum flow ofextracted. From the companys perspective, the revenues to the state, they do not take into accountbalance is between the potential rewards and the risks the financial risk faced by the mining companiesassociated with the investment. and foreign investors. States that overly rely on In recent years, governments have been re- production taxes also find they do not gain asexamining their arrangements with mining companies, much from the associated value benefit when thereand have sought to increase the revenues they receive is a spike in commodity prices.for the extraction of their natural resources. Although a number of tax systems and tools exist, This has led to three different trends in those most commonly applied include income tax andmining taxation: withholding tax on dividends, loan interest and 1. Regions with an already large share of the services. Royalties and land use fees as well as mining market have sought to increase administrative fees are commonly used. Excess profit taxation on natural resources (Australia taxes have been rarely used in the past, but with the being a prime example). Australian Mineral Resource Tax coming into force inEdition 1, 2013 State of the Market: Mining and Finance Report 24
  • 26. Mining Tax Comparison Corporate VAT Government Royalties Share of Global MiningCountry Tax (%) (%) On Mining (By value; %) (a)EUROPE Sweden 26.3 25 None 0.82 Poland 19 23 Varies by mineral 0.62 Turkey 20 18 4% for precious metals 0.47 Finland 24.5 23 None 0.15 Bulgaria 10 20 2% to 8%, on profit 0.15 Ireland 12.5 23 Yes (negotiated) 0.09 Norway 28 25 None 0.08 Armenia 20 20 4% of turnover, plus 12.5% of revenue 0.07 Portugal 25 23 Varies by mineral 0.07 Spain 30 18 2% of NSR 0.06 Greece 20 23 2.5% for gold 0.06 Austria 25 20 None 0.05 Macedonia 10 18 2% 0.05 Georgia 15 18 Unavailable 0.03 Azerbaijan 20 18 3% 0.01 Romania 16 24 4% 0.01 UK 24 20 None 0.00 Greenland 30 0 None 0.00 Albania 10 20 5% to 10%, by mineral 0.00 Cyprus 10 17 na 0.00 Czech Republic 19 17.50 Yes 0.00 Hungary 10 to 19 27 12% (e) 0.00 Italy 27.50 23 None 0.00SELECTED OTHER REGIONS Western Australia 29 101 6.50% effective rate for gold 15.70 1 Nevada 35 102 2% to 5% 4.86 2 Quebec 26.9 53 16%, on profit 3.00 3 Mexico 30 16 0% 2.34 Ghana 22 to 25 25 5% and higher CIT for mining 0.64 Burkina Faso 27.5 na 3% to 6%, indexed to gold price 0.23 New Zealand 28 15 * 0.15* 1% of sales revenues less than NZ$1.5 million or 2% of AVR for sales revenues less than NZ$1.5 million(a) Percentage national share of the global mined value of metallic minerals in 2011. Source: IntierraRMG(e) Estimatena Information not available1 - For the whole of Australia2 - For the whole of the USA3 - For the whole of CanadaEdition 1, 2013 State of the Market: Mining and Finance Report 25
  • 27. Special Report: Mining Royalties and Taxation continued2012 (also referred to as Resource Super Profits Tax) nickel, tin and gold). To further encourage domesticwe may see more use of this tool. Most mining value addition, the government has decreed a ban oncompanies are exempted from import and excise exporting materials (to be enforced by 2014) fromduties for their capital goods and receive VAT refunds. companies that do not have plans to build processing In order to induce FDI, mining companies are offered facilities in the country.a number of fiscal incentives, most commonly an While the major trend seems to be geared towardsallowance for accelerated depreciation of capital, increased taxation of the mining sector, there areand consent to carry forward losses. Environmental other countries looking to use the opportunity to offerand closure costs are tax deductible, as well as relatively lower tax regimes to encourage investmentcontributions to community and public infrastructure. and increase their market shares. This intention hasThere is less use recently of tax holidays and depletion been signalled by Kazakhstan, Russia and Canada.costs, or of tax stabilisation regimes, which have beenhistorically prevalent in, for example, Latin America. Royalty Payments There is a widespread in the rates set for nationalRecent Fiscal Developments royalties. In Canada, for example, Quebec imposesThe Australian government was successful last year a provincial-level royalty on mining operations, asin passing its Mineral Resource Rent Tax, despite opposed to federal taxation, but does not charge aheavy opposition from mining firms. From July 2012, royalty rate on production. It does, however, chargeiron ore and coal miners have been taxed at 30% on 16% on profits in addition to corporate tax ratesprofits exceeding A$75 million. The major driver (determined on a mine-to-mine basis).of the resource rent tax was the super profits being The Quebec mining royalty scheme was revised inexperienced by the mining sector, when growth 2010 and was in response to the demand that the statein the rest of the economy was restricted. gain a larger share of the gains from its natural This move by Australia has encouraged others to resources. The tax on profits allows the state and themake changes in their tax regimes. For example, Brazil mining firm to share the risks associated withis expected to follow suit by increasing its royalty rate mining activity.from 2% to 4%, as well as considering the introduction In the US, the state of Nevada imposes royaltiesof a ‘Special Participation Tax’, which will be based on profits, and these vary from 2% to 5% (theapplicable for large mining operations. Peru increased latter for gold). The calculation of the royalty rate isits royalty tax rate in 2011, applying it to operating a function of the ratio of profit over revenue, and wasprofits rather than net sales, and Chile is considering last set in 1989. The tax is based on the net proceedsraising royalties from 2018 onwards (most current from the sale of all minerals mined and producedcontracts end in 2017). in Nevada. Within Africa, a number of countries (including Mexico does not apply mining royalties, althoughGhana, Gabon, Guinea and Uganda) are looking to there are indications the government is consideringincrease taxation in the mining sector, although their introduction.formal directives in this regard have not yet been Western Australia utilises a combined system;announced. South Africa has reintroduced a mining charging a specific rate of A$1/t, plus an Ad Valoremroyalty tax, which had been on hold during the rate (5% of the royalty value for concentrate material,recession. Tanzania and Namibia are specifically and 2.5% of the royalty value for metals). The rateslooking at introducing excess profit taxes for mining were set in 2010 and will be reviewed in 2015. Thecompanies. Australian Mineral Resource Rent Tax is levied on iron India, in an effort to use mining revenue for and coal only.development and infrastructure projects, is also widely New Zealand has recently introduced royalties onexpected to increase mining taxation. minerals owned by the state. For gold and silver sales While some countries are looking towards increased revenue of less than NZ$1.5 million, this rate is eithermining taxation to increase the sector’s contribution 1% of sales or 2% of Asset Valuation Reserves (AVR),to the economy, others are looking at increased depending on which amount is higher. Thetaxation as a means of mitigating the environmental government is reviewing proposals to increase theseand social costs of the sector. For example, China royalties to which ever is higher of 2% AVR or animposed resource taxation on the mining and annual percentage rate (APR) of 10% on accountingoil sectors in November 2011, to counter profits over NZ$2 million.environmental degradation. In Africa, Ghana revised its Minerals and Mining Act Other countries have imposed taxation on un- in 2010, and set a flat royalty rate of 5%. Burkina Fasorefined ore exports in efforts to encourage processing has indexed its royalty rate to the price of gold; with aand value addition within the country. For example, minimum royalty rate of 3%, increasing to 4% for goldin May 2012, Indonesia announced the imposition of prices of US$1,000-1,300/oz, and to 5% for pricesa 20% export tax on unprocessed metals (including above US$1,300/oz.Edition 1, 2013 State of the Market: Mining and Finance Report 26
  • 28. For a number of European countries (Austria, Other European countries have a varying royaltyFinland, Germany, Greenland, Norway, Sweden and the rate, dependent on the international price.UK) there are no federal or provincial mining royalties. For example, Bulgaria is focusing on a rate of 2-8%While fees can be charged for obtaining permits and for profitability ratios of 10-60% for new projects.licenses for exploration and operations, these are not Ireland, on the other hand, negotiates royalty ratesmaterial costs of investment. on a mine-to-mine basis. In these seven countries, mining royalty fees are notlevied on production or profits. Instead mining Setting a Fair Ratecompanies, like other businesses operating in these The determination of what is an ‘equitable’ share ofcountries, are subject to corporate income tax, a project’s long-term value for host governments ispersonal income tax, Value Added Tax, property tax, based on a number of complex, inter-dependentsocial contributions and other similar fiscal factors.instruments. The mining sector in these European The first concern for a host government has to be tocountries is not subject to specific taxation schemes. maximise its revenue, and ancillary benefits, from the Turkey (one of the largest gold producers in the natural-resource sector (whether such returns are aregion) levies a 4% royalty on gold. Other countries result of direct or indirect revenue collection). Higherin Europe tend to have a different range of mining royalty rates can actually reduce financial returns toroyalties on production, charged depending on the the state by leading to a fall in long-term revenueminerals in question. For example, Albania charges (by discouraging further investments, for examplea 10% royalty for gold and 6% for copper. Poland to extend the life of a mine).charges PL3.10/t for copper ore and PL1.12/t for In an increasingly competitive mining world,lead and zinc. Portugal uses a number of different governments have to balance an ability to attractrates, depending upon the mineral, and upon ore investment with generating short-term state revenue.production levels. In particular, governments need to consider the mining Some countries in Europe have chosen to levy royalties sector’s role in its larger socio-economic plans.on profits, or the market value of the metal at the time The question most relevant to host governmentsof invoice. For example, Macedonia levies a royalty rate on fiscal matters in the mining sector is: How can theof 2% of the market value of the contained metal state ensure fiscal flexibility, allowing the country to(as opposed to the ore), Azerbaijan applies a rate of 3% benefit when prices rise, and bear a reasonable shareof the whole sale price for all metals, and Spain applies when they fall, while providing the predictability anda 2% rate on the net smelter return. profitability that investors seek? State of the Market: Mining and Finance Report Special features in the next two issues: Edition 2, 2013 • Special Coverage: Cash cost data • Annual overview of regional mining activity Edition 3, 2013 • Mid-year examination of the world’s metals stockpiles • Mining methods, and technology developments and trendsEdition 1, 2013 State of the Market: Mining and Finance Report 27
  • 29. About IntierraRMG For 30 years, Intierra and Raw Materials Group have been the mining industry’s preferred sources of data, analysis, consulting, reports and mineral information maps. We have provided resource sector intelligence for suppliers, financiers, governments, exploration and mining companies. As IntierraRMG, we deliver respected market and project reports, material flows analysis, mineral economics policy and unrivalled consulting expertise. Our databases and sector-specific modules offer unique insights into lease ownership, company evaluations, M&A, risk management, due diligence, competitor intelligence and project pipeline evaluation. IntierraRMG provides a range of services, including: IntierraLive Database Service Raw Materials Data Consulting and Analysis For further information on IntierraRMG, please email us on marketing@intierraRMG.com Other Reports: State of the Market: Exploration Report Underground Mining Mobile Equipment Copper Quarterly Report Copper Briefing Report (Monthly) Iron Ore Report Zinc - China and the World Top Mining Company Profiles Nickel: The Companies and their Markets Monthly World Metal Statistics World Metal Statistics Yearbook Metallstatistik (2001 – 2011) Quarterly Stainless Steel Statistics Annual Stainless Steel Statistics To purchase any of these reports,email: miningreports@intierraRMG.comEdition 1, 2013 State of the Market: Mining and Finance Report 28