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

World Mining and Energy Expo
14 August 2013 – Miami
CHALLENGES, RISKS, & OPPORTUNITIES
FOR THE MINING INDUSTRY
IN THE AMERICAS
Tim Alch
V.P & Senior Minerals Business Analyst
Behre Dolbear & Company (USA), Inc.
+1.845.480.1434

BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
Behre Dolbear
• Our expertise, integrity, and adherence to highest ethical and professional
standards has earned the respect of the industries we have served since
1911 creating value for clients with independent advice
• Our reputation stems from our global approach, best-in-field consultants’
experience, expertise and matchless integrity supporting reliable and truly
independent recommendations
• We have 12 offices in 8 countries and completed 210+ projects in 55+
countries in each of the last 5 years using our global network of 125+
professionals that includes work experience throughout the Americas
• We advise clients to optimally plan, manage, and operate in the mining and
minerals processing of base and precious metals, coal, uranium, ferrous,
fertilizer, and industrial minerals, gemstones, construction materials, etc.
2

BEHRE DOLBEAR
Behre Dolbear
• Our clients include mining, banking, investment, legal, accounting firms, and
state-owned mineral producers, government agencies, non-traditional
providers of mining finance, multi-lateral-export credit agencies, sovereign
wealth funds, private capital pools, family offices, trading companies, and
strategic mineral consumers that sponsor mineral development
 We have conducted extensive technical and financial due diligence on
copper-polymetallic base, precious metals, etc. projects in the Americas
 Behre Dolbear was engaged by the Board of Governors of the Hong
Kong Stock Exchange to review Listing Rules for Mining Companies
 In 2012, our Capital unit advised Hong Kong Exchanges & Clearing
Limited on its US$2.1B acquisition of the London Metal Exchange
 We regularly write and review Independent Technical Expert reports
 Our capabilities span managerial, technical and financial issues
• Additional information about Behre Dolbear is shown at the end herein
3

BEHRE DOLBEAR
Mining is a Long Term Business
With Many Risks
• Recent and current trends
• The significance of mining
• Country, political risks, et al.
• All resources are not golden
• Being prepared is always best
4

BEHRE DOLBEAR
Current Environment for Miners and
Investors
• Recent economic data less robust with conflicting global indicators
 Waning growth in China reflects shifting priorities versus continued
global urbanization and industrialization in populous developing
countries
 Regulatory, political, and resource nationalism risks rising
• Investors want returns on investments. Reserve replacement and
production growth at any and all cost, is not enough
 Major, large and small mining companies are writing down assets
 Expansion plans, new projects are being curtailed indefinitely
 Many Junior miners lack adequate development capital
• Margins are under pressure as are Boards and Executives
 Commodity prices are off from recent highs
 Costs are up, project overruns have become common
 Optimizing operating properties, strengthening cash flow is goal
• A chorus of actions to cut operating costs, sell marginal assets, and reduce
capital expenditure commitments is being heard
5

BEHRE DOLBEAR
Metals and Mining Equities Reflect Recent
Weaker Prices, Profits, and Growth
Since 4Q2011, investors show less interest in Global and North American
mining equities and favor broad general market indices
6
ACWI = iShares MSCI ACWI ETF (worldwide equity index)
BWMING = Bloomberg LP worldwide mining index
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1/1/2010 1/1/2011 1/1/2012 1/1/2013
S&P 500 vs. TSX Global Mining ETF
TSX Global Mining Index ETF S&P500 ETF
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1/1/2010 1/1/2011 1/1/2012 1/1/2013
World Mining Index
BWMING Index ACWI

BEHRE DOLBEAR
Metal Prices Are Down Since Last Year
2006
Avg
Prices
2007
Avg
Prices
2008
Avg
Prices
2009
Avg
Prices
2010
Avg
Prices
2011
Avg
Prices
2012
Avg
Prices
Prices
as of
July 26,
2013
July 26,
2013
vs.
Avg
2012
Aluminum
($/lb)
1.16 1.21 0.83 0.83 0.99 1.09 0.93 0.79 -15%
Copper
($/lb)
3.05 3.25 1.62 2.34 3.42 3.99 3.61 3.10 -14%
Lead
($/lb)
0.58 1.18 0.56 0.78 0.97 1.09 0.94 0.93 -1%
Nickel
($/lb)
11.01 17.25 4.62 6.65 9.87 10.38 7.96 6.21 -22%
Zinc
($/lb)
1.48 1.50 0.52 0.75 0.98 0.99 0.89 0.82 -8%
Gold
($/ounce)
603.46 695.39 736.0 972.91 1,225 1,573 1,669 1,331 -20%
Silver
($/ounce)
11.55 13.38 9.31 14.64 20.10 35.12 31.15 20.02 -36%
7

BEHRE DOLBEAR
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
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8,000
9,000
10,000
$PerTonneNickel
$PerTonne(Copper,Lead,Zinc,Aluminum)
Nominal Industrial Metal Average Prices
1970 – 2012
Aluminum Copper Lead Zinc Nickel
The Recent Metals Price Spike Follow
a 30 Year Period of Capital Destruction
Data Source: USGS and LME
Capital
Destruction
Capital
Creation
Capital
Destruction
?
8

BEHRE DOLBEAR
Asia, Africa, LatAm Want a Better Quality of
Life; On Average Did Better Since 2002
9

BEHRE DOLBEAR
More Consumers, More Money, and Minerals
This Curve May Flatten Too
10

BEHRE DOLBEAR
China’s Growing Urban Population
Continues at Scale Hard to Comprehend
11

BEHRE DOLBEAR
World’s Largest Mass Migration Continues,
Next, the World’s Middle Class Rises
• In the next 20 years, another 320 million Chinese people will move to urban
areas and its middle class may double to 600+ million by 2020
• Similar changes are occurring elsewhere in Emerging Markets worldwide
• China’s changing priorities may soften its metals demand growth and GDP
12

BEHRE DOLBEAR
China Consumes About Half the
World’s Metals, Energy, etc.
Source: UBS
13

BEHRE DOLBEAR
As China’s GDP Growth Eases, Its Share of
Consumption May Level Off: At High Levels
Source: The Economist and UBS
14

BEHRE DOLBEAR
Gold Is Not an Industrial Metal
Driven by Investor Sentiment, Price is Now ~$1,300
http://www.kitco.com/charts/historicalgold.html
15

BEHRE DOLBEAR
Recent Global Gold Investment Trend*
Source: GFMS, Thomson Reuters
* Global Gold Investment is the sum of implied net investment, physical bar investment, and all coins and medals
16

BEHRE DOLBEAR
China’s Appetite for Gold is Rising –
Will This Trend Continue for Next 10 Years?
Source: Frank Holmes, CEO and President of US Global Investors' July 2013 article 'The Asian Giant Stampeding Into Gold'
17

BEHRE DOLBEAR
Today Gold Supply is From Mines
and Scrap
Source: GFMS, Thomson Reuters 18

BEHRE DOLBEAR
Gold as a Share of the Pool of
Global Financial Assets is Small
Source: CPM Group
19

BEHRE DOLBEAR
Gold Prices and Costs Rose;
Margins are Less at $1,350/oz
Source: BMO Research
20

BEHRE DOLBEAR
Not All Resources Are Golden Or Economic
• Markets are not static, nor are prices and cost of
doing business, etc. There are many variables
and a long period of time is involved
• If it sounds too good, it likely is. Inexperience,
misleading statements, and questionable
practices require knowing who, what you are
dealing with
• There is no good substitute for an independent
technical review by qualified experts about the
geologic, business potential of the resource
• Investors want independent verification
21

BEHRE DOLBEAR
Today – Less Investor, Lender Interest
• A Risk-off attitude is plaguing mining equities
• Economic growth in China, EU, etc. is slower
• Investor outlook is more cautious with GFC,
Euro Crisis, Cyprus, China slowing, etc.
• Metals prices and valuations are down
• Many ‘Juniors’ are short of capital
• Many Juniors’ existence is issue
• There is less speculative interest
• Cash and Cash Flow is King
22

BEHRE DOLBEAR
Sector Has Shifted From Growth Paradigm
to Cost and Capex Control
• Executives are cutting capex, refocusing on
higher quality assets, suspending projects, and
partnering on certain projects
• Alternative, non-traditional investors SOE, SWF
may strategically, opportunistically fill the gap
• Private equity may capitalize on low valuations
• Strategic transactions may drive M&A
• Tough markets may continue in 2014
23

BEHRE DOLBEAR
Reasons to be Optimistic – Longer Term
• Urbanization and industrialization in China, Asia, India,
South America, Middle East, Africa, etc. continues to
drive industrial metals and energy demand
• Security and stability of supply are a concern in China,
Korea, Japan, Middle East, etc. and of some industrial
companies e.g., energy fuels (coal, uranium), fertilizer
minerals, technology/critical metals, etc.
• Constraining new supply are: Declining ore grades and
spending; Higher costs; Fewer large deposits; Larger
‘takes’ by Governments; Changing political winds; etc.
• Metals supply longer term may struggle to meet
demand. Sporadic price spikes may/can occur
• Prices may stay above long term averages
24

BEHRE DOLBEAR
Caution Always Best: Mining is
Cyclical and Impacted by Many Risks
• What happened since 2002 is in the past – the
near term may/can be very different
• You can lose a fortune being optimistic about
the near term – some already have
• Behre Dolbear does not forecast metals prices
• We focus on geo-technical, operating, business,
and financial issues impacting exploration,
development and operations in mining
• We do conduct an annual Survey about Where
to and Not to Invest in the Mining Sector
25

BEHRE DOLBEAR
Behre Dolbear’s Country Risk Survey
Focuses on Political Risk, Not Geotechnical
• Since 1999, Behre Dolbear conducts an annual
survey of country risk for mining investments to
assist potential investors in 25 of the most
active mining markets around the world
• Countries that stifle mining with detrimental
political, economic, financial, and regulatory
policies should be challenged to make changes
that are more accommodative to its success
26

BEHRE DOLBEAR
Behre Dolbear’s Annual Ranking of
25 Countries for Mining Investment
• Our view is there is positive correlation between
the growth of a nation’s wealth and prosperity of
its mining and minerals processing industry
• Only when a country recognizes critical need to
adapt and restructure burdensome policies
– will it truly optimize its economic potential
• Our survey does not focus on geology and or
geo-technical risk
27

BEHRE DOLBEAR
Behre Dolbear’s Annual Ranking of
25 Countries for Mining Investment
• We evaluate these criteria as they pertain to the
exploration, development, operation of and
investment in mines, and rank each country by:
Economic system
Political system
Degree of social issues affecting mining
Permitting process and other delays
Degree of corruption
Stability of the currency
Tax regime
• All criteria are weighted equally on a 10-point scale,
with 70 total possible points
28

BEHRE DOLBEAR
The Americas Rank High in Our Survey
• Brazil, Chile, Colombia, Mexico, Peru, Canada, and
USA consistently rank high to operate in and for
investment
• Countries perceived to have the lowest political risk, all
other things being equal, are able to attract more of the
global mineral investment and realize a premium for
resources over countries where perceived instability
exists. Attracting capital investment is competitive
• Mining companies and investors, shareholders, and
project stakeholders require confidence they are in
stable agreements and able to accommodate variable
market conditions over extended periods of time
29

BEHRE DOLBEAR
Behre Dolbear’s 2013 Ranking of
25 Countries From Safest to Riskiest
30
1. Australia
2. Canada
3. Chile
4. Brazil
5. Mexico
6. United States
7. Colombia
8. Botswana
9. Ghana
10.Peru
11.Namibia
12.Mozambique
13.Tanzania
14.Philippines
15.Argentina
16.China
17.India
18.Indonesia
19.Mongolia
20.Zambia
21.South Africa
22.Papa New Guinea
23.Kazakhstan
24.D. R. Congo
25.Russia

BEHRE DOLBEAR
The Americas is a Favorite
Mining Investment Destination
As shown in the International Council on Metals and Mining (ICMM) Oct 2012
article ‘Mining’s Contribution to Sustainable Development’ about Regional
Project Investments in 2011 (based on Raw Materials Advisory Group data)
31
Region
Investments
(US$ Billions)
Share
(%)
Lain America 192 28
North America 124 18
Oceania 113 17
Africa 99 15
Europe 75 11
Asia 73 11
Total 676 100

BEHRE DOLBEAR
Attracting Investment is Competitive
• Government officials at the local, state and federal levels should
work with and know operators and investors respond to stakeholder
expectations
• Changing taxes, royalties, etc. deters investors that require stability
and consistency to earn a return and retain access to capital
markets
• Investors can feel stymied by inconsistent, convoluted and changes
in mining policy and terms and require trust with local stakeholders
• To increase investment consistent, efficient enforcement of law is
best:
 Certainty – Security of Title/Tenement
 Confidence – Development Approvals
 Confidence – Social and Environmental Issues
 Confidence – Tax/Royalty Regime
 Acceptable Level of Sovereign Risk
32

BEHRE DOLBEAR
Finding An Economic Resource
Is Expensive and Risky
33

BEHRE DOLBEAR
Exploration is Very Risky and Expensive,
From Discovery to Start Up is About 17 Years
34Source: Stephen Enders from Eurasian Minerals at SME
Current Trends in Mining Finance Conference April 2013

BEHRE DOLBEAR
Balancing Expansion with Local
Development is Needed
• After discovery is development and mineral processing –
an energy intensive stage of the production chain – from
milling, grinding, processing to smelting and refining
• All jurisdictions face more than geotechnical challenges,
such as infrastructure, water, power, human, and financial
capital. A balanced approach is best and works
• In remote, less developed regions projects require proper
long term plans and cooperative support of stakeholders,
local communities, and all levels of government
• There are many examples of successful projects benefiting
local economies and communities and other stakeholders
35

BEHRE DOLBEAR
Investments Are Long Term
• To be successful projects and investors need to have
confidence that stable, consistent rule of law exists in
order to earn competitive returns and maintain access to
capital through cyclical and volatile market conditions
• Investment trends are competitive and reflect variable
economic trends as are the expectations and risks of
project owners, shareholders, lenders, investors, etc.
• Stakeholders evaluate projects in a risk-adjusted
manner seeking to reduce risk exposure
• Planning for different, changing risks is difficult
36

BEHRE DOLBEAR
Top Ten Risks Facing the Mining and Metals
Industry Over Five Years – By E&Y
2008 2012
1. Skills shortage
2. Industry consolidation
3. Infrastructure access
4. Maintaining social license to operate
5. Climate change concerns
6. Rising costs (cost inflation)
7. Pipeline shrinkage
8. Resource nationalism
9. Access to secure energy
10. Increased regulation
1. Resource nationalism
2. Skills shortage
3. Infrastructure access
4. Cost inflation
5. Capital project execution
6. Maintaining social license to operate
7. Price and currency volatility
8. Capital management and access
9. Sharing the benefits – new
10. Fraud and corruption
37Red = Remained in the Top Ten Over Five Years
Source: E&Y Business Risks Facing Mining and Metals 2012 - 2013

BEHRE DOLBEAR
Trained, Independent Eyes Are Best to
Evaluate Geo Technical Issues
• Simply, best projects are low cost, in stable regions and
likely today are expansions/extensions of existing mines
• Resources are concentrations, occurrences of minerals
in such form, quantity and of such grade or quality they
have reasonable prospects for economic extraction
• Qualified management and officials are essential to
realize project value as are understanding markets,
definitions, methods to describe a resource that can
vary by user and jurisdiction
BEWARE OF RULES OF THUMB
38

BEHRE DOLBEAR
When to Call Independent Experts
• Resources are not a curse, they are essential
• Failure to properly manage is not good
• Expert advice early on is best, if you are an owner,
investor, and or an official evaluating policy
• All too often experts are called upon when:
A property, project, transaction is off course
Lenders and investors are out of patience
Company and owners are out of money
Despair has set in
39

BEHRE DOLBEAR
Miners, Geologists Are Trained to Find,
Explore – Core to the Business
Mining companies and management feel
obliged to find and develop new competitive,
low cost resources, i.e., their Life Blood,
to replace reserves – that are diminishing assets
MANAGEMENT & INVESTORS BEWARE!
Once a Fido = Dog, Always a Phydeaux
= A Higher Class Dog is Still A Dog!
Less capital is available today for exploration
40

BEHRE DOLBEAR
Goal is to Realize Value: How? When?
Chart is Not Reality, Nor a Given. It is Theory
41

BEHRE DOLBEAR
Our Role as Independent Experts
Whether we are advising mining companies, investors, lenders, or
government stakeholders, all benefit from our qualified expertise to:
• Evaluate the inherent risks
• Act as resident skeptic
• Hear our view about project risk(s):
 High Risk: A factor poses an immediate danger of a failure,
if uncorrected, may have a material effect (>15%) on the
project cash flow and performance and could lead to project
failure
 Moderate Risk: A factor, if uncorrected, could have a
significant effect (10%) on the project cash flow and
performance unless mitigated by some corrective action
 Low Risk: A factor, if uncorrected, may have little or no
effect on project cash flow and performance
42

BEHRE DOLBEAR
Economic Worthiness of a Property
Is Impacted By Many, Many Variables
Study these and many other items with discerning, trained eye:
• Property Information and Stable Regulatory Environment
• Geology and Resources
• Mining
• Mineral Processing and Metallurgy
• Infrastructure
• Products, Markets, and Sales
• Environmental and Permitting
• Financial Issues
• Development Costs and Schedule
• Political and Social Considerations
• Market
• Project Economics – Opex and Capex
43

BEHRE DOLBEAR
Three Levels of Engineering Studies
Used to Define Economic Worthiness
Conceptual Study/Scoping Study
Pre-feasibility Study
Feasibility Study
44

BEHRE DOLBEAR
Engineering Studies – Scoping Study
• aka Conceptual Study, Preliminary Economic Analysis
• First engineering study to compile all elements of a
project into one evaluation and apply economic tests
• Its accuracy is based on first principles, knowledge,
and experience and is generally +50% / -25%
• This is the least expensive engineering study and is
usually completed in 90 days or less
45

BEHRE DOLBEAR
Engineering Studies – Pre Feasibility Study
• aka PFS or Pre-Feasibility Study
• Accurate to +25% / -15%
• May take 6 to 18 months to complete
• Engineering evaluation applied to key elements, such as:
• The caliber of the resource estimate
• The mine design
• The process design
• Mineralogical analysis
• Metallurgical testing
• Soil and rock engineering tests
• Smelting/refining and marketing
• Environmental work – the EIA is completed during the PFS
• Cash flow analysis, sensitivity analyses, and economic tests
46

BEHRE DOLBEAR
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
47

BEHRE DOLBEAR
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
48

BEHRE DOLBEAR
Ten Types of Project Risk to Examine
• Geological
• Mining
• Metallurgical/processing
• Environmental and social issues
• Human resource issues
• Market
• Operating and capital costs
• Company
• Country
• Financial Institution
49

BEHRE DOLBEAR
1. Geological
• Geological Risk
Reserves
Reserves
Reserves
50

BEHRE DOLBEAR
In Best Case: Accepted Resource – Reserve
Classification System Can Be Used
Australia JORC Code
Canada CIM 2000 / NI 43-101
Europe PERC
South Africa SAMREC Code
United States SME / SEC Industry Guide 7
Russia A, B, C, D, E
China Traditional and New (1999)
51

BEHRE DOLBEAR
2. Mining
• Mining Risks
Surface versus underground
Drilling/blasting
Rock hardness
Dilution
Mine plan
Cut-off grade
52

BEHRE DOLBEAR
3. Metallurgical Processing
• Metallurgical/Processing Risk
Recovery method
Adequacy of testing
Representativeness of samples
Contractor/mill constructor
53

BEHRE DOLBEAR
Deeper Dive: Issues To Examine
• How much? What is head grade %
• What is the valuable mineral?
• What is the particle size of the mineral relative
to all of the other minerals in the ore?
• What are the relative specific gravities of the
valuable minerals and gangue?
• What is the overall competence or hardness of
the rock containing the ore?
• Magnetism, radioactivity, electrostatic response
• Color, reflectivity, UV response, chemistry
54

BEHRE DOLBEAR
Where Is the Metal?
How Hard Will it be to Separate?
po, pyrrhotite; py, pyrite; cpy, chalcopyrite)
Au – Gold; BI – Bismuth
55

BEHRE DOLBEAR
Steps to Process Minerals
• Size Reduction: crushing and grinding
• Sizing: screening
• Classification: by gravity and size
• Separation or Concentration: use any one or a
combination of mineral processing steps
available to produce a concentrate
• Dewatering of Tailings or Concentrates: via
settling, filtration, and drying, for example
56

BEHRE DOLBEAR
Typical Gold Processing Circuit
57

BEHRE DOLBEAR
Mills Are Large and Costly
58

BEHRE DOLBEAR
5. Human Resources
• Human Resource Issues
Management
Organization
Union contracts
Pension liabilities
Social issues/local peoples
MIS/IT systems
60

BEHRE DOLBEAR
6. Market
• Market Risks
Who will buy product/marketability
Smelter availability
How many smelters?
Contract (Good for both parties)
Hedging/forward sales
61

BEHRE DOLBEAR
7. Operating and Capital Costs
• Operating and Capital Costs
Operating Costs
− Dramatic recent increases due to higher fuel
costs, higher wages, higher supply costs, and
delays in deliveries of supplies
Capital Costs
− Increases in steel and equipment costs have
affected all proposed operations and expansions
of existing operations
− “Blowouts” are now frequent
62

BEHRE DOLBEAR
8. Company Risk
• Financial strength
• Mining experience
• Management experience
63

BEHRE DOLBEAR
9. Country Risk
• Political stability
• Tax regime
• Attitude toward mining
• Nationalization/privatization history
• Foreign exchange controls/currency stability
64

BEHRE DOLBEAR
10. Financial Institution
• Experience in country
• Presence in country
• Experience in industry
• Financing capability
65

BEHRE DOLBEAR
Highlighting Four Issues Impacting
Project Success Today
Four issues impacting the mining industry today
that operators, investors, regulators, and officials
need to understand and manage properly
• Social license and environmental issues
• Controlling operating and project costs
• Higher government take/resource nationalism
• Access to capital
66

BEHRE DOLBEAR
1. Social License and Environmental Issues
• Social opposition to mining and environmental
issues are causing project delays and cost
increases at mining projects
• Striving to be compliant with regulations and
NGO agitation, etc. are contributing to higher
project costs and delays
• Gaining confidence of a local community is as
essential as it can be expensive for a mining
company to gain a Social License to operate
67

BEHRE DOLBEAR
2. Cost Control is Essential
Recent trends became intolerable:
• Capex rose in recent years
• Capex lags metal prices
• Over runs are an issue
• Investments are at risk
• Projects being idled
• High grading ores
Per Unit of Annual Production (US$)
Gold $1,250 to $2,500 per oz of annual production
Copper $3.50 to $4.50 per lb of annual production
Elevated Indicative Capital Costs
68

BEHRE DOLBEAR
Building Mines – Capital Costs
• Capital costs are primarily dependent on
 Location, political situation, skilled labor availability
 Depth of ore zone and mining horizons
 Shaft and or adit/ramp access
 Plant size
− Equipment fleet size and material handling capacity
− Processing plant capacity to match mining rate
− Shaft size and hoisting capacity
 Mining method
− Level of mechanization and automation
− Productivity per man shift
69

BEHRE DOLBEAR
Different Geology; Different Economics
• Of the world’s gold production the bulk is from
sulphide ore rather than oxide ore
• Project and operating economics are different
• Representative indicative measures:
Sulphide Ore: Capex low grade $300 to
$700+ million; minimum 2 to 5m oz
Oxide Ore: Capex is scalable with Opex =1/5
of Sulphide; minimum scale can be small
70

BEHRE DOLBEAR
Many Issues Can Go Wrong When
Estimating Mine Operating Costs
• VAT/sales tax, not included and import duties neglected
• Improper cycle times and haulage distances used
• Fuel and electricity costs under estimated
• Ground control under estimated
• Mining sequence and methods
• Poor waste dump design
• Inadequate pre-stripping
• Poor haul road design
• Pit slopes
• Dilution
• Etc.
71

BEHRE DOLBEAR
Recent Examples of Capital Costs
Rising Above Plan (US$ Billions)
Project Original Current
Pueblo Viejo 2.5 3.5
Galore Creek 2 5+
Cerro Casale 2 6
Pascua Lama 3 8+
72

BEHRE DOLBEAR
3. Increased Government Take Occurring
• Changing rules and Government ‘take’ at local,
state, and federal levels are today’s reality
• aka resource nationalism is an issue raising
project risk and investor uncertainty
• In normal mining cycles, a project will fail if
Government take exceeds 50%
• Over time investors, lenders, owners, and local
stakeholders bear the brunt
• Miners take all the risk
73

BEHRE DOLBEAR
4. Access to Capital
• Currently, equity and debt difficult to obtain
• New sources of funding need to be found
• Private Equity, State Owned Enterprises, etc.
may play a larger role
74

BEHRE DOLBEAR
Recent Capital Markets Trends
• Metals markets in 2012 - 1H13; turbulent at best
• A long term perspective is needed in mining
• Banks, investors, operators are risk adverse
• Management, employees, partners, customers,
i.e., all stakeholders need to be realistic
• Uncertainty may continue into 2014
75

BEHRE DOLBEAR
More Consolidation in Mining is Likely
• Alternative and strategic investors, private equity,
SWFs, and SOEs may opportunistically step in
• Valuations are less than greenfield investment
• Consolidation likely to form Super and Larger Majors
• SOEs, SWFs, e.g., Japan, Korea, India likely to
continue to acquire strategic metals and energy fuel
resources
• Strategic M&A may buoy asset and share prices
76

BEHRE DOLBEAR
Of the Top Ten Commodities by Global
Projects in 2011: Gold Was #1
• Investors, lenders, and speculators were attracted to precious
metals
• What will 2013/4 look like?
Source: Intierra
77

BEHRE DOLBEAR
In 2011 China M&A Focused on Gold
Source: Ernst and Young
78

BEHRE DOLBEAR
In 2012 Coal, Gold, Copper M&A Was High
21.4
17.9
14.2
13.4
7.3
5.3
4.0 3.9 3.6
2.3
10.6
0
5
10
15
20
25
$Billions
2012 M&A Activity by Target Commodity
Source: Ernst and Young
79

BEHRE DOLBEAR
Recent China Acquisition Trend By Region –
USA and Canada = Small Share
By Value 1st Half 2012
80

BEHRE DOLBEAR
Mining in the Americas Has an
Excellent Future
• Mining has a long history in the Americas
• Geology, location, and labor are excellent
• Economic benefits from mining are real
including royalties, taxes, employment, etc.
• Best to continue providing stable business
friendly policies, invest in infrastructure,
safety, education, and training, as needed
• The market this past year changed considerably
which officials should be mindful of
81

BEHRE DOLBEAR
Prepare for the Best and Worst
Check and Double Check
• While mining has a favorable outlook, it is
competitive and capital intensive with the
recent 10 years largely impacted by China
• Projects in the first cost quartile will be funded
• Partner with skilled, business managers
• Moderate country risks of doing business
• Expect continued volatility and cycles
• Investors do carefully weigh costs of doing
business and political country risk
82

BEHRE DOLBEAR
The Behre Dolbear Group
• We perform technical, operating, financial issues and valuations studies
advising clients in the mining, banking, investment, financial, legal and
accounting sectors and government agencies around the world
• Our group of experts provides a reservoir of proven expertise and
experience in all disciplines related to the mining of base, precious and
ferrous metals, coal, uranium, fertilizer and industrial minerals, gemstones,
construction materials including cement, dimension stone, sand, and gravel
• Behre Dolbear Group consists of a five operating divisions, each offering a
range of highly specialized and complementary services. They are:
 Technical Consulting
 Engineering Services
 Behre Dolbear Capital (Financial advisory)
 Management Consulting
 Environmental Services
83

BEHRE DOLBEAR
• To meet client requirements, we select, integrate and manage our highly
qualified and experienced specialists drawn from the appropriate division.
 Each are selected for their particular skill-set and ability to provide the
highest levels of insight, advice and recommendation
 They have experience in many transactions involving brown and green
field projects requiring lender due diligence and project monitoring.
 If other skills and experience are required, our flexibility and depth of
resource allows us to deliver them swiftly and efficiently
• We have 12 offices in 8 countries, completed 210+ jobs in 55+ countries in
each of the last 5 years using our global network of 125+ professionals
Tim Alch
V.P. & Senior Minerals Business Analyst
Behre Dolbear & Company (USA), Inc.
100 Park Avenue, New York, New York 10017
+1.845.480.1434 Tim.Alch@dolbear.com
84

BEHRE DOLBEAR
85

BEHRE DOLBEAR
Appendix
Characteristics of 3 levels of engineering studies –
Not exhaustive, rather indicative checklists that
require trained, qualified experts’ review:
Conceptual/Scoping Study
Pre-feasibility Study
Feasibility Study
86

BEHRE DOLBEAR
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies – A1
Potential Areas of Investigation
for Proposed Mining Projects
PROPERTY INFORMATION
Location, topography and climate
Land ownership and royalties
Property history
Current status
GEOLOGY AND RESOURCES
Geological description
Mineralogy
Drilling, sampling and assaying
Evaluation techniques
Mineral resource estimate
MINING
Ore reserve estimate
Mining method and plans
Mining equipment
Material handing
Material handling equipment
Historical and forecast production
Consumables
Mining capital estimates
Mining operating cost estimates
PROCESSING
Ore sampling and testwork
Processing method
Other required processes
Process equipment
Historical and forecast production
Consumables
Processing capital estimates
Processing operating cost estimates
INFRASTRUCTURE
Industrial infrastructure facilities
Social infrastructure facilities
Utilities, power, water
Infrastructure capital estimates
Infrastructure operating cost estimates
MANAGEMENT AND LABOR
Management organization requirements
Labor requirements
PRODUCTS, MARKETS AND SALES
Products
Markets
Prices
Sales
ENVIRONMENTAL AND PERMITTING
Permit list
Environmental impact
Compliance costs
Compliance cost timing
Reclamation expenses
FINANCIAL ISSUES
Taxes
Royalties
Fees
Licenses
DEVELOPMENT COSTS AND SCHEDULE
Development cost estimate
Development schedule
Development methodology
POLITICAL & SOCIAL CONSIDERATIONS
Economic benefits and costs
Government considerations
Other issues

PROJECT ECONOMICS
Economic parameters
Discount rate determination
Cash flows
Investor returns
Debt analysis
Sensitivities
87

BEHRE DOLBEAR
(continued)
CATEGORY
CONCEPTUAL
STUDY/SCOPING STUDY
PRE-FEASIBILITY STUDY FEASIBILITY STUDY
INTRODUCTION
Location, Topography, and Climate
Site location map
Ownership and Royalties
Claims list
Claims map
Current Status and History
Historical chronology
Information on past production, if any
•Yes
•No
No
No
No
•Yes
•No
Yes
No
No
•Yes
•Yes
Yes
Yes
Yes
GEOLOGY AND RESOURCES
Geological Description
Geological map
Geological cross-sections
Drilling, Sampling, and Assaying
Parameters
Drill hole location map
Sampling/assaying flow diagram and assessment
Assay check assessment and graph
Mineral Resource Estimate
Resource methodology determination and approach
Geologic model limits
Lithology/tonnage factors/code
Cumulative frequency of samples verses grade
Variograms
Resource Estimate
Yes
No
Yes
Yes
No
No
Yes
Yes
No
No
No
Industry Standards (NI 43-
101, JORC, etc.)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
101, JORC, etc.)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
101, JORC, etc.)
88

BEHRE DOLBEAR
(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%
89

BEHRE DOLBEAR
(continued)
CATEGORY
CONCEPTUAL
STUDY/SCOPING 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
No
Yes, ±30%
manuals ±30%
No, preliminary data
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes, quote
Yes, quote
Yes, quote
Yes, quote
Yes, quote
Yes, ±15%
Yes, from vendor quotes and
take-offs ±15%
90

BEHRE DOLBEAR
(continued)
CATEGORY
CONCEPTUAL
STUDY/SCOPING 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%
manuals ±30%
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes, ±15%
Yes, from vendor quotes &
take-offs ±15%
MANAGEMENT, LABOR & ADMINISTRATION
Personnel
Personnel lists
Training requirements
Personnel Capital & Operating Cost Estimates
Consumables list
Personnel operating cost estimates
Personnel capital cost
No
No
No
Yes, factored ±45%
Yes, factored ±45%
Yes
Yes
No
Yes, ±30%
Yes, ±30%
Yes
Yes
•Yes
Yes, ±15%
Yes, ±15%
91

BEHRE DOLBEAR
(continued)
CATEGORY
CONCEPTUAL
STUDY/SCOPING STUDY
MARKETS, PRODUCTS AND SALES
Markets, Products and Sales
Products
Volume
Prices
Sales organization
Sales Related Capital and Operating Cost Estimates
Personnel list
Consumables list
Sales related operating cost estimates
Sales related capital cost estimates
Yes, preliminary
Yes, preliminary
Yes, preliminary
No
No
No
Yes, factored ±45%
Yes, factored ±45%
Yes
Yes
Yes
Yes, preliminary
Yes
No
Yes, ±30%
Yes, ±30%
Yes
Yes
Yes
Yes, preliminary
Yes
No
Yes, ±15%
•Yes, ±15%
ENVIRONMENTAL AND PERMITTING
Environmental
Permit list
Environmental Impacts
Environmental Compliance Cost Estimates
Personnel list
Environmental related operating cost estimates
Environmental related capital cost estimates
No
Yes, preliminary
No
Yes, factored ±45%
Yes, factored ±45%
Yes
Yes
Yes
Yes, ±30%
Yes, ±30%
Yes
Yes
Yes
Yes, ±15%
Yes, ±15%
92

BEHRE DOLBEAR
(continued)
CATEGORY
CONCEPTUAL
STUDY/SCOPING 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
93

BEHRE DOLBEAR
(continued)
CATEGORY
CONCEPTUAL
STUDY/SCOPING 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
94

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