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Financing Alternatives in Today’s Economic Climate: A Canadian

Assessment

Presenter: Janne Duncan Partner, Toronto office November 30, 2009

Tel.: 416 202-6715Email: janne.duncan@macleoddixon.com

Emerging from the Dark Ages?

• Dark Ages for Mining Companies: Late 2008 to Current– Global financial crisis following the collapse of

Lehman Brothers in mid-September 2008 negatively impacted almost every industry

• Commodity prices suffered as a result of lower demand for goods and services

• Gilded Age: 2001 to 2008– Long bull market, driven by growth in the BRIC

countries: Brazil, Russia, India and China

• Renaissance?– Market rally during last half of 2009

Where are we today?

• As of March 2009 (the middle of the plunge), commodity prices were still above historical norms

• 60% rise in stock prices since March 2009 (but still off cyclical highs)

Current Price March 2009 Cyclical Low 2001

Cyclical High 2008

Copper US$3.09/lb(100% rise)

US1.97/lb (Drop of >50%)

US$0.60/lb US$4.10/lb

Aluminum US$0.88/lb US$0.64/lb US$0.55/lb US$1.48/lb

Gold US$1180/oz(US$1104 November 27)

US$882/oz US$265/oz US$1000/oz

Traditional sources of financing

• Mining companies have 3 traditional sources of financing:

– Internal cash flow from operations

– Borrowing (issuing debt)

– Equity (issuing shares)

Effects of volatility on traditional sources of financing

• Before the crash, listed companies (of all stages) could raise equity:

– Initial public offering (IPO)– Secondary offering of equity (short form

prospectus)– Sometimes, secondary bond offerings

Effects of volatility on traditional sources of financing

• Stock price volatility has made it extremely difficult to obtain cash flow from its 3 traditional sources of financing:

– Internal cash flow from operations - affected by low commodity prices

– Borrowing (issuing debt) – unavailable during the financial crisis

– Equity (issuing shares) – companies that issue stock while stock prices are low risk substantial dilution

Exploration, Development, Production

Phase of Phase of developmedevelopmentnt

IssuesIssues

Exploration Companies that try to discover new depositsVery risky; may not find any deposits; no cash flow to fund operations or service debt

Development Develop the discoveries (upgrade resources to reserves, conduct feasibility studies, arrange project finance)

Production Produce the minerals for sale

May have saved cash generated by high commodity prices enjoyed between 2001 and 2007

Need to replenish depleted reserves through exploration and development, or through acquisitions

Exploration, Development, Production

Phase of Phase of developmedevelopmentnt

IssuesIssues

Exploration Few equity financings for junior to mid-exploration companies on the TSX or TSX-V during 2009 Continue to struggle to survive as risk equity not availableRely on alternative sources, such as joint venturesMay be acquired

Exploration, Development, Production

PhasePhase IssuesIssuesDevelopment Dormant during the first half of 2009, with some exceptions

Banro Corporation, a TSX-listed gold exploration and development company with properties in DRC, successfully completed a Cd$100 million common share offering (June 2009)

Debt financing may now be available, but at higher interest rates to mitigate repayment risk.Yields range widely

Debt financings may include equity component such as warrants to convertible feature to mitigate repayment risk

Debt financings may be secured against all property and assets

Alternative financing sources less available

Alternative forms of financing may be attractive: off-take agreements, royalty agreements. Macleod Dixon presentation is available on request.

Exploration, Development, Production

PhasePhase IssuesIssuesProduction Mid- to senior tier miners have used market strength in

commodities during last half of 2009 to access the capital markets through equity financings in the secondary market

Gold producers have been very successful in raising capital on the TSXBarrick Gold Inc. secondary offering of Cd$4 billion common shares (September 2009)

Tier 1 mining companies have been able to raise debt during first half of 2009Newmont Mining Corp. US$1 billion financing (February 2009)

Tier 2 mining companies have also successfully raised debt during second half of 2009Teck Resources US$4.2 billion bond financing (May 2009) First Quantum US$500 million bond financing (June 2009)

Trends

• IPOs have been almost non-existent during the economic crisis but appears to be picking up

• New listings on the Toronto Stock Exchange include international mining companies with non-Canadian assets that are already listed on other exchanges

ASX and, to a lesser degree, AIM-listed companies are listing on TSX (and we are seeing a lost of interest from AIM listed companies)

• UK = Cluff Gold (UK-based company with assets in West Africa)• Australia = Allied Gold Limited (Australian-based company with

assets in Papua New Guinea)• Bought deals have been successful for gold companies that are

already listed:• Gammon Gold: $100 million bought deal (October 2009)• Great Basin Gold: $110 million bought deal (November 2009)

Mergers and Acquisitions

• Anticipate continued consolidation in the mining industry• Valuations a challenge given volatility of stock prices• Deals may be friendly (between strategic partners in order to

survive) or hostile because of perceived gaps in what the seller thinks the company is worth, and what the buyer is willing to pay

• Possible increase in deals involving distressed companies

How to prepare

• Listing on recognized exchange• Corporate Transparency

– corporate governance– continuous disclosure, including in

Technical Reports• Political stability• Favourable mining regulatory environment

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