Geotechnical and Business Issues and Risks when Evaluating Mineral Prospects

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Information about Geotechnical and Business Issues and Risks when Evaluating Mineral...
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Published on May 5, 2014

Author: TimAlch

Source: slideshare.net

Description

This presentation given at a Baker & McKenzie Seminar in Toronto highlights the variable, multiple issues and risks impacting the global exploration and mining business today

Prospectors and Developers Association of Canada PDAC Convention 2014 Geotechnical and Business Issues When Evaluating Resources in the Current Market Environment at Baker & McKenzie LLP’s Seminar How to Reduce Risk in International Resource Projects Tim Alch V.P & Senior Minerals Business Analyst Behre Dolbear & Co. +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 • Our group of experts provides a reservoir of proven expertise and experience in all disciplines related to the mining and minerals processing of base, precious and ferrous metals, coal, uranium, fertilizer and industrial minerals, gemstones, cement, dimension stone, sand, and gravel 2

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS 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  Our capabilities span managerial, technical and financial issues  We conduct technical and financial due diligence around the world  Behre Dolbear was engaged by the Board of Governors of the Hong Kong Stock Exchange to review Listing Rules for Mining Companies  We regularly write and review Independent Technical Expert reports • Additional information about Behre Dolbear is shown at the end herein and at our website www.dolbear.com and is available upon request. 3

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Success Is Driven Not Only By Geology Study these and many project issues 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 4

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Finding and Evaluating A Resource Is Costly and Risky, with No Guarantees 5

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Exploration is Very Risky and Expensive, From Discovery to Start Up Can Be ~17 Years 6Source: Stephen Enders from Eurasian Minerals at SME Current Trends in Mining Finance Conference April 2013

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Areas of Investigation for Mining Projects 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 7

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Our Role as Independent Experts Whether we are advising mining companies, investors, lenders, or government stakeholders, all benefit from 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 8

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS When To Call An Expert • There is a reason Wall Street terms Mining a ‘deep cyclical’ – As valuations in 2013 made clear • If mining were that simple, there would be more successful and profit making firms, operations • Typically experts are called on to the scene 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 9

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Three Levels of Engineering Studies Seeing Into the Future is Hard • Not exhaustive, rather indicative checklists • Each require trained, qualified experts’ review:  Conceptual/Scoping Study  Pre-feasibility Study  Feasibility Study • Feasibility or Definitive Study – in very broad terms  Is the document upon which a mine is approved by the Board of a mining company developing the mine  If financing is required, this is the document evaluated by financial institutions in their decision-making process  Is document to which a completed and commissioned mine plan is compared to determine its commercial status • Caveat Emptor – If it sounds too good to be true – Get a 2nd opinion 10

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies (1) CATEGORY – Illustrative not exhaustive 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.) 11

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies (2) CATEGORY – Illustrative not exhaustive 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% 12

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies (3) CATEGORY – Illustrative not exhaustive 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% 13

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies (4) CATEGORY – Illustrative not exhaustive 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% 14

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies (5) CATEGORY – Illustrative not exhaustive 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% 15

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies (6) CATEGORY – Illustrative not exhaustive 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 16

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Characteristics of Scoping, Pre-Feasibility, and Feasibility Studies (7) CATEGORY – Illustrative not exhaustive 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 17

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Mining is a Long Term Proposition – Adapting to Uncertainty is Hard • Changing taxes, royalties, rules, regulations etc. deters investors and delays action • Projects and investors need to have stable rule of law to earn competitive returns and maintain access to capital thru cyclical and volatile market conditions • Investment trends are competitive & reflect variable economic trends as are expectations and risks of project owners, shareholders, lenders & investors • Stakeholders evaluate projects in a risk-adjusted manner seeking to reduce risk exposure • Planning for different, changing risks is difficult 18

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Mining Involves Many Risks, Different Goals and Horizons • Geologists optimistically look for lode • Developers look for funds and mine • Bankers, Investors look for returns • Local people want jobs and stake • Governments want participation • There are many others involved • Bottom line: There are many risks 19

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Current Environment is Challenging Focused on Optimization and Lower Costs • 2013 was plagued with less robust growth and weaker prices  China’s GDP is less than 8%; transitioning, shifting priorities  Commodity prices are off from recent highs • Regulatory, political and resource nationalism risks are rising • Investor focus is on returns, Growth at any, all cost, is not enough  Mining companies have been writing down assets  Expansion plans, new projects have been curtailed  Many Junior miners lack sufficient capital • Margins are under pressure, as are Boards and Executives • Strengthening cash flow, Optimizing operations, Cutting costs, Sales of marginal assets, Reduced capex are goals • Selective, opportunistic M&A and investments can occur with Private Equity, SWFs, SOEs taking greater interest in mining 20

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Reasons To Be Optimistic – Longer Term • Urbanization, 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., technology or critical metals, fertilizer minerals, energy fuels (coal, uranium) 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 may struggle to meet demand in longer term. Sporadic price spikes may/can/do occur • Prices may stay above long term averages 21

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Behre Dolbear • 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 • Behre Dolbear offers a range of highly specialized and complementary services  Technical Consulting  Engineering Services  Valuation and Financial advisory  Management Consulting  Environmental Services 22

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Behre Dolbear • To meet client requirements, we select, integrate and manage our highly qualified and experienced specialists  Each are selected for 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 as well as management advisory roles  If other skills and experience are needed, our flexibility and depth of talent allows us to deliver them swiftly and efficiently Tim Alch V.P. & Senior Minerals Business Analyst Behre Dolbear & Co. +1.845.480.1434 Tim.Alch@Dolbear.com 23

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS Behre Dolbear - A Worldwide Resource 24

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