Guidelines for Exploration and Mining Investment Dennis Buchanan Department of Earth Science and Engineering RMG’s Exploration and Mining Investment Conference 18 November 2005

Consolidations in the Mining Industry Barrick Files Formal Bid for Placer Dome11/10/2005 Barrick Gold Corporation announced today that it has filed with securities regulators in Canada and the United States its formal offer to acquire all the outstanding shares of Placer Dome Inc. Barrick is commencing the mailing of its offering circular and related documents to Placer Dome shareholders. Ashanti and Anglogold Merger becomes Effective Monday, April 26, 2004. Ashanti Goldfields Company Limited (“Ashanti”) is pleased to announce that at the court hearing held on 23 April 2004, the High Court of Ghana confirmed the scheme of arrangement required to implement the merger with AngloGold Limited.

Barrick Files Formal Bid for Placer Dome11/10/2005 Barrick Gold Corporation announced today that it has filed with securities regulators in Canada and the United States its formal offer to acquire all the outstanding shares of Placer Dome Inc. Barrick is commencing the mailing of its offering circular and related documents to Placer Dome shareholders.

Ashanti and Anglogold Merger becomes Effective Monday, April 26, 2004. Ashanti Goldfields Company Limited (“Ashanti”) is pleased to announce that at the court hearing held on 23 April 2004, the High Court of Ghana confirmed the scheme of arrangement required to implement the merger with AngloGold Limited.

Exploration by Proxy Thursday, July 01, 2004 AngloGold Ashanti Limited ("AngloGold Ashanti") is pleased to announce that it has agreed to acquire a 29.9% stake in Trans-Siberian Gold plc ("TSG"), through an equity investment of approximately £17.6 million (the "Transaction"). TSG, admitted to trading on the London Stock Exchange's Alternative Investment Market, is the UK based holding company for the TSG Group's Russian gold business, operated through its four Russian subsidiaries. Financial Times 11 November 2005. ….some gold miners prefer not to explore for gold. Ian Telfer, chief executive of Gold Corp , said: "I have never found an ounce of gold in the 25 years I have been in the gold business, and I have watched hundreds of millions of dollars spent on exploration, only to find very little.“ "I prefer to leave it to the juniors, and keep my exploration money and spend it on buying the junior companies that have found the gold," Mr Telfer said.

Thursday, July 01, 2004 AngloGold Ashanti Limited ("AngloGold Ashanti") is pleased to announce that it has agreed to acquire a 29.9% stake in Trans-Siberian Gold plc ("TSG"), through an equity investment of approximately £17.6 million (the "Transaction"). TSG, admitted to trading on the London Stock Exchange's Alternative Investment Market, is the UK based holding company for the TSG Group's Russian gold business, operated through its four Russian subsidiaries.

Financial Times 11 November 2005. ….some gold miners prefer not to explore for gold. Ian Telfer, chief executive of Gold Corp , said: "I have never found an ounce of gold in the 25 years I have been in the gold business, and I have watched hundreds of millions of dollars spent on exploration, only to find very little.“ "I prefer to leave it to the juniors, and keep my exploration money and spend it on buying the junior companies that have found the gold," Mr Telfer said.

Mining Project Stages of Planning & Execution Generative Targets =100 Exploration Targets = 20 Evaluation Projects =2 Pre-Feasibility Juniors Full Feasibility Development Due Diligence Acquisition Majors Funding

Typical Pure Equity Funding Value Enhancement Geochemistry & Geophysics Satellite deposits Abandoned Mine Known extensions Metallogenic belt Site of historical mining and exploration Project Prefeasibility Study GIS-Based review. Satellite imagery Mine Design Bulk Sampling & Metallurgical Tests Drilling Techniques Evaluation Exploration Simplified Kilburn Valuation Economic and technical parameter evaluation Full Feasibility Infill drilling for preliminary economic evaluation Resource Definition RC or diamond drilling for geological modelling Advanced Minor field work, trenching & geological drilling Intermediate Desk-top studies and target generation Grass Roots

Components of a Joint Venture Junior Co Local JV Licences and Partnerships Valuation $10M. Needed to determine holdings Major Junior-Major JV 55:45 Management Committee Pre- Feasibility Study Mine Development Junior-Major 20:80 Free carry for Junior but no Profit share before Costs recovered Full Cost $1M Min Expen $2M/yr Over 2 yrs Holding 80:20 In Country Off Shore Feasibility Study

Funding Options for Mineral Projects Investment Banks Bond – secured Project Finance Production Institutions Bond - unsecured AIM, Toronto, Major Mining Companies Rights Issue Joint Venture Development Feasibility and permitting AIM, Vancouver, Toronto SE Initial Public Offering Evaluation Drilling, resource estimation, prefeasibility Private Placements Seed Capital Exploration Geochem, geophysics, trenching Source Type Stage

Financial Engineering As the gearing changes so does the NPV. The obvious reason why the NPV increases with increased levels of debt is because of the greater relief on tax and because the cash flows are being discount by the cost of debt, not equity. The lower cost of debt allows for a WACC lower than the cost of equity when the latter is determined from the CAPM, which then significantly enhances the NPV. The risk for the shareholder is that hedging imposed by the banks could lock them out of significant revenue received from the project, because they receive less benefit from any major increase in metal prices. Major international mining companies also virtually act as their own investment banks in setting the cost of capital.

As the gearing changes so does the NPV. The obvious reason why the NPV increases with increased levels of debt is because of the greater relief on tax and because the cash flows are being discount by the cost of debt, not equity. The lower cost of debt allows for a WACC lower than the cost of equity when the latter is determined from the CAPM, which then significantly enhances the NPV.

The risk for the shareholder is that hedging imposed by the banks could lock them out of significant revenue received from the project, because they receive less benefit from any major increase in metal prices.

Major international mining companies also virtually act as their own investment banks in setting the cost of capital.

MSc in Metals and Energy Finance Course offered jointly by the Department of Earth Science & Engineering and the Tanaka Business School Degree, Imperial College London The MSc course in Metals and Energy Finance is designed to provide training in the technical and financial appraisal of natural resource projects, emphasising quantitative skills and how these are applied in the development of capital-intensive, mining, oil and gas industries.

Short Course Activities Guidelines to Investment Stockholm 20-22 February 2006