International Precious Metals Institute
Annual Meeting – 25 June 2013 – Phoenix
The Importance of Independent,
Qualified, ...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Overview - What to Look For When
Evaluating Mining Projects
• Recent...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
1,000
2,0...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Metals Demand Has Grown,
Sentiment Now Is Cautious
• Urbanization, i...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
China‟s Population Continues to Urbanize
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Largest Mass Migration in History Sets
Theme for World‟s Rising Midd...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
China Consumes About Half the
World‟s Metals, Energy, etc.
Source: U...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
China‟s Share of Global Metals
Consumption May Level Off
Source: The...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Cautious Now; Long Term Demand Positive
• Mining companies have redu...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Gold <$1,300/oz Is Well Below Recent Highs,
Narrowing Margins - How ...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Since Sept 2011 Metals Equities Fell
Disappointed Investors Flock to...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Cautious, Deliberate, Long Term View
Is Core to Cyclical Mining Busi...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
When To Call Independent Experts
• It is best to get Qualified exper...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
The Business Goal Is To Realize Value:
How? When?
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Finding A Gold Mine Is Costly and Risky
It All Starts With Explorati...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Exploration Is Core to Mining
What To Look For
Mining companies and ...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Why Trained, Qualified Eyes Are Needed
• Best properties are low cos...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
In the Best Case: Accepted Resource-Reserve
Classification Systems a...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
In the Worst Case: Beware of Fraud
• If it sounds too good, it likel...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Economic Worthiness of a Property
Is Impacted By Many, Many Variable...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
From Discovery To Start Up = ~17 Years
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Three Levels of Engineering Studies
Used to Define Economic Worthine...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Engineering Studies – Scoping Study
• aka Conceptual Study, Prelimin...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Engineering Studies – Pre Feasibility Study
• aka PFS or Pre-Feasibi...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Engineering Studies – Feasibility Study
• Feasibility Study or Defin...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Definition – Feasibility Study
“A comprehensive study of a mineral d...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Major Risk Categ...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Ten Types of Pro...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
1. Geological
• ...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
2. Mining
• Mini...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
3. Metallurgical...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Deeper Dive: Iss...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Where Is the Met...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Steps to Process...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Typical Gold Pro...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Mills Are Large ...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
5. Human Resourc...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
6. Market
• Mark...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
7. Operating & C...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
8. Company Risk
...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
9. Country Risk
...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
10. Financial In...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
© 2011 Behre Dolbear Group Inc. All Rights Reserved
Four Issues Impa...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
1. Social Issues/Social License to Operate
• Social, Economic, Regul...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
2. Costs Control Needed
• Capex rising through cycle
• Capex lags ri...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Building Mines – Capital Costs
• Capital costs are primarily depende...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Different Geology; Different Economics
• Of the world‟s gold product...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
What Can Go Wrong: Issues To Look For
Mine Operating Cost Estimation...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Recent Examples of Capital Costs Rising
Above Plan (US$ Billions)
Pr...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
3. Increased Government Take
• Changing measures and Government „tak...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
4. Access to Capital
• Currently, equity and debt difficult to obtai...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Recent Capital Markets Trends
• Metals markets in 2012 & 1H13 are tu...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
More Consolidation in Mining is Likely
• Valuations are less expensi...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Of the Top Ten Commodities by Global
Projects in 2011: Gold Was #1
•...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
In 2011 China M&A Focused on Gold
Source: Ernst and Young
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
In 2012 Global Gold M&A Was High Again
21.4
17.9
14.2
13.4
7.3
5.3
4...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Recent China Acquisition Trend By Region –
USA & Canada = Small Shar...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Prepare for the Best and Worst –
Check and Double Check
• Mining has...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
The Behre Dolbear Group
• Behre Dolbear has 12 offices in 8 countrie...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
The Behre Dolbear Group
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Appendix
Characteristics of 3 levels of engineering studies –
Not ex...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies...
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  • LabTitle might be better as “………………Consumption Also Exploded”Label “y” axis as “Percent of Global Consumption” ? ?
  • Importance of Independent Due Diligence in Mining IPMI Conference Presentation June 2013

    1. 1. International Precious Metals Institute Annual Meeting – 25 June 2013 – Phoenix The Importance of Independent, Qualified, Technical Due Diligence in Mining for Investors, Owners, & Managers Tim Alch V.P & Senior Minerals Business Analyst Behre Dolbear & Company (USA), Inc. +1.845.480.1434
    2. 2. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Overview - What to Look For When Evaluating Mining Projects • Recent and current trends • All resources are not golden • Issues to examine and consider • Prepare for the best and worst
    3. 3. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 $PerTonneNickel $PerTonne(Copper,Lead,Zinc,Aluminum) Nominal Industrial Metal Average Prices 1970 – 2012 Aluminum Copper Lead Zinc Nickel Recent Years Have Been Good, Relative to Price Cycles of the Past 40 Years Data Source: USGS and LME Capital Destruction Capital Creation Capital Destruction ?
    4. 4. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Metals Demand Has Grown, Sentiment Now Is Cautious • Urbanization, industrialization continues in China, SE Asia, India, parts of LatAm, MENA driving industrial metals and energy demand • Security & stability of supply are a concern in China, Korea, Japan, Middle East, etc. and select co.s e.g., fuel (coal, uranium), fertilizer minerals, technology/critical metals, etc. • Economic growth in China, EU, etc. is slower • Metals prices and valuations are down • Risk-off attitude is plaguing sector
    5. 5. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS China‟s Population Continues to Urbanize
    6. 6. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Largest Mass Migration in History Sets Theme for World‟s Rising Middle Class • In the next 20 years, ~325 million people to move to urban areas in China • China‟s middle class may to double to 600+ million by 2020 • A similar shift is occurring elsewhere around the world
    7. 7. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS China Consumes About Half the World‟s Metals, Energy, etc. Source: UBS
    8. 8. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS China‟s Share of Global Metals Consumption May Level Off Source: The Economist and UBS
    9. 9. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Cautious Now; Long Term Demand Positive • Mining companies have reduced spending • Investors and lenders are very cautious • Cash is king, may be primed for M&A • Many „Juniors‟ are short of capital • Tough markets may go into 2014 • Longer term - supply may struggle to meet demand • Sporadic price spikes in metals markets can occur • Constraining new supply are: Declining ore grades; Higher costs; Fewer large deposits; Larger „takes‟ by Governments; Changing political winds; etc.
    10. 10. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Gold <$1,300/oz Is Well Below Recent Highs, Narrowing Margins - How Low Can It Go? Source: BMO Research
    11. 11. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Since Sept 2011 Metals Equities Fell Disappointed Investors Flock to S&P Source: Cowen Securities - 50% 100% 150% Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 GDXJ Coal Index Copper Index S&P 500 Source: Capital IQ. Data as of April 26, 2013. Note: Coal Index represents Dow Jones U.S. Coal Index. Copper Index based on Cowen Securities Investment Banking coverage database.
    12. 12. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Cautious, Deliberate, Long Term View Is Core to Cyclical Mining Business • You can lose a fortune being optimistic about the near term future – some have already • As a legendary analyst said “Be careful about looking to mountain tops as paths through valley floors can be treacherous” • Behre Dolbear focuses on geo-technical, operating, business & financial issues that impact exploration, development, operations • We do not forecast metals prices
    13. 13. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS When To Call Independent Experts • It is best to get Qualified expert advice early on whether you are an owner, investor, etc. • All too often experts are called when: The company is out of money Lenders are out of patience Despair has set in • Caveat Emptor – Buyer Beware • Profitable projects are few
    14. 14. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS The Business Goal Is To Realize Value: How? When?
    15. 15. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Finding A Gold Mine Is Costly and Risky It All Starts With Exploration
    16. 16. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Exploration Is Core to Mining What To Look For Mining companies and management feel obliged to find and develop new competitive, low cost resources, i.e., their Life Blood – to replace existing reserves – that are diminishing assets – and to Stay Competitive MANAGEMENT & INVESTORS BEWARE! Once a Fido = Dog, Always a Phydeaux = A Higher Class Dog is Still A Dog!
    17. 17. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Why Trained, Qualified Eyes Are Needed • Best properties are low cost, in stable jurisdictions & likely expansions/extensions of existing mines • Top rate management always essential • Understanding terms and markets critical • „Resources‟ are concentrations or occurrences of minerals in such form and quantity and of such grade or quality that they have reasonable prospects for economic extraction • Terms, definitions, methods used to evaluate a property can vary by user & jurisdiction BEWARE
    18. 18. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS In the Best Case: Accepted Resource-Reserve Classification Systems are Used Australia JORC Code Canada CIM 2000 / NI 43-101 Europe PERC South Africa SAMREC Code United States SME / SEC Industry Guide 7 Russia A, B, C, D, E China Traditional and New (1999)
    19. 19. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS In the Worst Case: Beware of Fraud • If it sounds too good, it likely is • Look for misleading statements • Know who you are dealing with, etc. • Evaluate circumstances relative to history • There is no good substitute for an Independent, Qualified Expert review – too many variables and too long a period of time are involved • Being diligent using Rules of Thumb, Common Sense, etc. are not good enough
    20. 20. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Economic Worthiness of a Property Is Impacted By Many, Many Variables Study these and many other items with discerning, trained eye: • Property Information and Stable Regulatory Environment • Geology and Resources • Mining • Mineral Processing and Metallurgy • Infrastructure • Products, Markets and Sales • Environmental and Permitting • Financial Issues • Development Costs and Schedule • Political and Social Considerations • Market • Project Economics – Opex and Capex
    21. 21. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS From Discovery To Start Up = ~17 Years
    22. 22. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Three Levels of Engineering Studies Used to Define Economic Worthiness Conceptual Study/Scoping Study Pre-feasibility Study Feasibility Study
    23. 23. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Engineering Studies – Scoping Study • aka Conceptual Study, Preliminary Economic Analysis • First engineering study to compile all elements of a project into one evaluation and apply economic tests • Its accuracy is based on first principles, knowledge, and experience and is generally +50% / -25% • This is the least expensive engineering study and is usually completed in 90 days or less
    24. 24. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Engineering Studies – Pre Feasibility Study • aka PFS or Pre-Feasibility Study • Accurate to +25% / -15% • May take 6 to 18 months to complete • Engineering evaluation applied to key elements, such as • The caliber of the resource estimate • The mine design • The process design • Mineralogical analysis • Metallurgical testing • Soil and rock engineering tests • Smelting/refining and marketing • Environmental work – the EIA is completed during the PFS • Cash flow analysis, sensitivity analyses, and economic tests
    25. 25. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Engineering Studies – Feasibility Study • Feasibility Study or Definitive Study • The document upon which mine is approved by the Board of the mining company developing the mine • If financing is required, this is the document evaluated by financial institutions in their decision-making process • The Feasibility Study is also the document to which the completed and commissioned mine plan is compared to determine its commercial status
    26. 26. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Definition – Feasibility Study “A comprehensive study of a mineral deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.” - Canadian National Instrument 43-101
    27. 27. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Major Risk Categories To Look For • Project  As defined by engineering studies (or lack thereof) • Company  Its experience at building and operating mines in the same commodity • Country  Reference Behre Dolbear‟s Country Risk Survey • Financial Institution  Experience in mining, the region, the country, and the commodity in question
    28. 28. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Ten Types of Project Risk: Some Issues to Look For • Geological • Mining • Metallurgical/processing • Environmental and social issues • Human resource issues • Market • Operating and capital costs • Company • Country • Financial Institution
    29. 29. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 1. Geological • Geological Risk Reserves Reserves Reserves
    30. 30. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 2. Mining • Mining Risks Surface versus underground Drilling/blasting Rock hardness Dilution Mine plan Cut-off grade
    31. 31. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 3. Metallurgical Processing • Metallurgical/Processing Risk Recovery method Adequacy of testing Representativeness of samples Contractor/mill constructor
    32. 32. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Deeper Dive: Issues To Examine • How much? What is head grade % • What is the valuable mineral? • What is the particle size of the mineral relative to all of the other minerals in the ore? • What are the relative specific gravities of the valuable minerals and gangue? • What is the overall competence or hardness of the rock containing the ore? • Magnetism, radioactivity, electrostatic response • Color, reflectivity and UV response, chemistry
    33. 33. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Where Is the Metal? How Hard Will it be to Separate? po, pyrrhotite; py, pyrite; cpy, chalcopyrite) Au – Gold; BI – Bismuth
    34. 34. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Steps to Process Minerals • Size Reduction: crushing and grinding • Sizing: screening • Classification: by gravity and size • Separation or Concentration: use any one or a combination of mineral processing steps available to produce a concentrate • Dewatering of Tailings or Concentrates: via settling, filtration, and drying, for example
    35. 35. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Typical Gold Processing Circuit
    36. 36. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Mills Are Large and Costly
    37. 37. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 5. Human Resources • Human Resource Issues Management Organization Union contracts Pension liabilities Social issues/local peoples MIS/IT systems
    38. 38. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 6. Market • Market Risks Who will buy product/marketability Smelter availability How many smelters? Contract (Good for both parties) Hedging/forward sales
    39. 39. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 7. Operating & Capital Costs • Operating and Capital Costs Operating Costs − Dramatic recent increases due to higher fuel costs, higher wages, higher supply costs, and delays in deliveries of supplies Capital Costs − Increases in steel and equipment costs have affected all proposed operations and expansions of existing operations − “Blowouts” are now frequent
    40. 40. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 8. Company Risk • Financial strength • Mining experience • Management experience
    41. 41. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 9. Country Risk • Political stability • Tax regime • Attitude toward mining • Nationalization/privatization history • Foreign exchange controls/currency stability
    42. 42. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved 10. Financial Institution • Experience in country • Presence in country • Experience in industry • Financing capability
    43. 43. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS © 2011 Behre Dolbear Group Inc. All Rights Reserved Four Issues Impacting Project Success Today • Social Issues/Social License to Operate • Costs Control • Higher Government Take/Resource Nationalism • Access to Capital
    44. 44. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS 1. Social Issues/Social License to Operate • Social, Economic, Regulatory issues are a leading cause of project delay & cost increases • Striving to be compliant with regulations and NGO agitation, etc. are contributing to higher project costs and delays • Gaining confidence for Social License to operate is essential
    45. 45. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS 2. Costs Control Needed • Capex rising through cycle • Capex lags rise in metal prices • Number of blow ups increasing • Long investment horizons • Project development • Reserve expansion Per Unit of Annual Production (US$) Gold $1,250 to $2,500 per oz of annual production Copper $3.50 to $4.50 per lb of annual production Capital Costs
    46. 46. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Building Mines – Capital Costs • Capital costs are primarily dependent on  Location, political situation, skilled labor availability  Depth of ore zone and mining horizons  Shaft or adit/ramp access  Plant size − Shaft size and hoisting capacity − Equipment fleet size and material handling capacity − Processing plant capacity to match mining rate  Mining method − Level of mechanization and automation − Productivity per man shift
    47. 47. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Different Geology; Different Economics • Of the world‟s gold production the bulk is from sulphide ore rather than oxide ore • The project, operating economics are different • Representative indicative measures: Sulphide Ore: Capex low grade $300 to $700+ million; minimum 2 to 5m oz Oxide Ore: Capex is scalable with Opex =1/5 of Sulphide; minimum scale can be small
    48. 48. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS What Can Go Wrong: Issues To Look For Mine Operating Cost Estimation • Fuel and electricity costs under estimated • VAT/sales tax, not included and import duties neglected • Improper cycle times & haulage distances used • Mining sequence and methods • Ground control under estimated • Inadequate pre-stripping • Poor haul road design • Pit slopes • Dilution • Poor waste dump design • Etc.
    49. 49. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Recent Examples of Capital Costs Rising Above Plan (US$ Billions) Project Original Current Pueblo Viejo 2.5 3.5 Galore Creek 2 5+ Cerro Casale 2 6 Pascua Lama 3 8+
    50. 50. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS 3. Increased Government Take • Changing measures and Government „takes‟ at local, state, and federal levels are today‟s reality • A global concern – Raises Project Uncertainty • In normal mining cycles, a project will fail if Government take exceeds 50% • Mining companies take all the risk
    51. 51. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS 4. Access to Capital • Currently, equity and debt difficult to obtain • New sources of funding need to be found • Private Equity, State Owned Enterprises, etc. may play a larger role
    52. 52. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Recent Capital Markets Trends • Metals markets in 2012 & 1H13 are turbulent - at best • A long term perspective is needed in mining business • Banks, investors and operators are now risk adverse • Management, stakeholders, employees, partners & customers need to be realistic about options • This uncertainty may continue well into 2014 • Alternative and strategic investors, private equity, SWFs and SOEs may opportunistically step in
    53. 53. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS More Consolidation in Mining is Likely • Valuations are less expensive than greenfield investment • Consolidation to form Super and Larger Majors is likely • SOEs, SWFs e.g. Japan, Korea, India likely to continue to acquire strategic metals and energy fuel resources, etc. • Strategic M&A may buoy mining assets and share prices
    54. 54. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Of the Top Ten Commodities by Global Projects in 2011: Gold Was #1 • Investors, lenders, & speculators were attracted to precious metals • What will 2013/4 look like? Source: Intierra
    55. 55. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS In 2011 China M&A Focused on Gold Source: Ernst and Young
    56. 56. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS In 2012 Global Gold M&A Was High Again 21.4 17.9 14.2 13.4 7.3 5.3 4.0 3.9 3.6 2.3 10.6 0 5 10 15 20 25 $Billions 2012 M&A Activity by Target Commodity Source: Ernst and Young
    57. 57. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Recent China Acquisition Trend By Region – USA & Canada = Small Share By Value 1st Half 2012
    58. 58. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Prepare for the Best and Worst – Check and Double Check • Mining has a favorable long term outlook • Have skilled, business savvy managers • Always best to be in first cost quartile • Understand and prepare for cycles • Be aware of jurisdictional risks • Always do due diligence • Consider all unknowns THANK YOU
    59. 59. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS The Behre Dolbear Group • Behre Dolbear has 12 offices in 8 countries and completed 210+ jobs in 55+ countries in each of the last 5 years using our global network of 125+ professionals in all major mining markets • We perform studies and advise a wide range of entities in the mining, banking, investment, financial, legal and accounting sectors, and government agencies around the world • Our evaluations span technical, operating, financial issues and valuations of base, precious and ferrous metals, coal, uranium, fertilizer & industrial minerals, gemstones, construction materials Tim Alch V.P. & Senior Minerals Business Analyst Behre Dolbear & Company (USA), Inc. 100 Park Avenue, New York City 10017 +1.845.480.1434 Tim.Alch@dolbear.com
    60. 60. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS The Behre Dolbear Group
    61. 61. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Appendix Characteristics of 3 levels of engineering studies – Not exhaustive, rather indicative checklists that require trained, qualified experts‟ review: Conceptual/Scoping Study Pre-feasibility Study Feasibility Study
    62. 62. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A1 Potential Areas of Investigation for Proposed Mining Projects PROPERTY INFORMATION Location, topography and climate Land ownership and royalties Property history Current status GEOLOGY AND RESOURCES Geological description Mineralogy Drilling, sampling and assaying Evaluation techniques Mineral resource estimate MINING Ore reserve estimate Mining method and plans Mining equipment Material handing Material handling equipment Historical and forecast production Consumables Mining capital estimates Mining operating cost estimates PROCESSING Ore sampling and testwork Processing method Other required processes Process equipment Historical and forecast production Consumables Processing capital estimates Processing operating cost estimates INFRASTRUCTURE Industrial infrastructure facilities Social infrastructure facilities Utilities, power, water Infrastructure capital estimates Infrastructure operating cost estimates MANAGEMENT AND LABOR  Management organization requirements  Labor requirements PRODUCTS, MARKETS AND SALES  Products  Markets  Prices  Sales ENVIRONMENTAL AND PERMITTING  Permit list  Environmental impact  Compliance costs  Compliance cost timing  Reclamation expenses FINANCIAL ISSUES  Taxes  Royalties  Fees  Licenses DEVELOPMENT COSTS AND SCHEDULE  Development cost estimate  Development schedule  Development methodology POLITICAL & SOCIAL CONSIDERATIONS  Economic benefits and costs  Government considerations  Other issues PROJECT ECONOMICS  Economic parameters  Discount rate determination  Cash flows  Investor returns  Debt analysis  Sensitivities
    63. 63. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A2 (continued) CATEGORY CONCEPTUAL STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY INTRODUCTION Location, Topography, and Climate Site location map Ownership and Royalties Claims list Claims map Current Status and History Historical chronology Information on past production, if any •Yes •No No No No •Yes •No Yes No No •Yes •Yes Yes Yes Yes GEOLOGY AND RESOURCES Geological Description Geological map Geological cross-sections Drilling, Sampling, and Assaying Parameters Drill hole location map Sampling/assaying flow diagram and assessment Assay check assessment and graph Mineral Resource Estimate Resource methodology determination and approach Geologic model limits Lithology/tonnage factors/code Cumulative frequency of samples verses grade Variograms Resource Estimate Yes No Yes Yes No No Yes Yes No No No Industry Standards (NI 43- 101, JORC, etc.) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Industry Standards (NI 43- 101, JORC, etc.) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Industry Standards (NI 43- 101, JORC, etc.)
    64. 64. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A3 (continued) CATEGORY CONCEPTUAL STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY MINING Ore Reserve Estimate Reserve and resource calculation parameters Cutoff grade equations Reserve and resource estimate Mining Method and Plans Mining parameters Hydrology/geotechnical parameters Mining equipment list Consumables list Material handling systems Material handling equipment Personnel list Surface mining Final pit and dump outlines Incremental pit and dump outlines Underground mining General mine development Mining approach (stoping, cut and fill, etc.) Production Schedule Historical production, if any Annual ore and waste tonnage and grade Mining Capital and Operating Cost Estimates Mining operating cost estimates Mining capital cost estimates Assumed Values No Industry Standards Yes, minimal engineering basis No No No No No No No Yes, simple outline No Yes, general outline Yes, general approach Yes Yes, division of total Yes, factored 45% Yes, factored 45% Test-Based Values Yes Industry Standards Yes, some geotechnical data Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes, 30% Yes, from engineering manuals 30% Test-Based Values Yes Industry Standards Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes, 15% Yes, from vendor quotes and take-offs 15%
    65. 65. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A4 (continued) CATEGORY CONCEPTUAL STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY PROCESSING Ore Sampling and Test Work Test work data Processing Methods and Plans Processing methods Processing parameters Equipment list Consumables list Personnel list Material balance Flow diagram Site plan General arrangement drawings Production Schedule Historical production, if any Annual production tonnage and grade Off-site Processing Cost Estimates Concentration charges Smelting and refining charges Other charges Material handling and transport Insurance and sales charges Processing Capital and Operating Cost Estimates Processing operating cost estimates Processing capital cost estimates No, assumed values Yes, general approach Yes, minimal engineering No No No No No Yes, simple block diagram No No Yes Yes, division of total No No No No Yes, factored 45% Yes, factored 45% No, preliminary data Yes Yes Yes No Yes Yes Yes Yes No Yes Yes Yes, preliminary estimate Yes, preliminary estimate Yes, preliminary estimate Yes, preliminary estimate No Yes, 30% Yes, from engineering manuals 30% No, preliminary data Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes, quote Yes, quote Yes, quote Yes, quote Yes, quote Yes, 15% Yes, from vendor quotes and take-offs 15%
    66. 66. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A5 (continued) CATEGORY CONCEPTUAL STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY INFRASTRUCTURE Industrial Infrastructure Facilities Facilities list Power and water parameters Full site plan Social Infrastructure Facilities Facilities list Housing Schools Hospitals Other Infrastructure Capital and Operating Cost Estimates Consumables list Personnel list Infrastructure operating cost estimates Infrastructure capital cost estimates Yes, with minimum detail Yes, preliminary No Yes, with minimum detail No No No No No No Yes, factored 45% Yes, factored 45% Yes Yes Yes Yes Yes, preliminary Yes, preliminary Yes, preliminary Yes, preliminary Yes Yes Yes, 30% Yes, from engineering manuals 30% Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes, 15% Yes, from vendor quotes & take-offs 15% MANAGEMENT, LABOR & ADMINISTRATION Personnel Personnel lists Training requirements Personnel Capital & Operating Cost Estimates Consumables list Personnel operating cost estimates Personnel capital cost No No No Yes, factored 45% Yes, factored 45% Yes Yes No Yes, 30% Yes, 30% Yes Yes •Yes Yes, 15% Yes, 15%
    67. 67. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A6 (continued) CATEGORY CONCEPTUAL STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY MARKETS, PRODUCTS AND SALES Markets, Products and Sales Products Volume Prices Sales organization Sales Related Capital and Operating Cost Estimates Personnel list Consumables list Sales related operating cost estimates Sales related capital cost estimates Yes, preliminary Yes, preliminary Yes, preliminary No No No Yes, factored 45% Yes, factored 45% Yes Yes Yes Yes, preliminary Yes No Yes, 30% Yes, 30% Yes Yes Yes Yes, preliminary Yes No Yes, 15% •Yes, 15% ENVIRONMENTAL AND PERMITTING Environmental Permit list Environmental Impacts Environmental Compliance Cost Estimates Personnel list Environmental related operating cost estimates Environmental related capital cost estimates No Yes, preliminary No Yes, factored 45% Yes, factored 45% Yes Yes Yes Yes, 30% Yes, 30% Yes Yes Yes Yes, 15% Yes, 15%
    68. 68. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A7 (continued) CATEGORY CONCEPTUAL STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY DEVELOPMENT SCHEDULE AND COSTS Development Schedule Development methodology Development schedule Development Costs Personnel list Development related operating cost estimates Development related capital cost estimates •Yes, preliminary Yes, preliminary No No No •Yes Yes Yes Yes, 30% Yes, 30% •Yes Yes Yes Yes, 15% Yes, from vendor quotes & take-offs 15% PROJECT ECONOMICS Financial Issues Taxes Royalties Fees Licenses Economic Issues Economic parameters Discount rate determination Cash flows Investor returns Debt analysis 1.Sensitivities Yes, preliminary Yes, preliminary Yes, preliminary Yes, preliminary Yes, preliminary Yes, preliminary Yes, preliminary Yes, preliminary No No Yes Yes Yes Yes Yes Yes Yes Yes No Yes, preliminary Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
    69. 69. BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies – A8 (continued) CATEGORY CONCEPTUAL STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY SUMMARY AND RECOMMENDATIONS Operational Parameters Title and ownership Geology Ore reserves Mining and processing rates Development period and mine life Metal/mineral recoveries Sales Operating cost estimates Capital cost estimates Financial Parameters Cash Flows NPV, IRR, and ROI Mostly assumed and factored Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Some engineering basis Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Some engineering basis Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

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