technical risks affecting mining investments

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© SRK Consulting (UK) Ltd 2016. All rights reserved.

Presenter:

Location:

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A Consultants Perspective Technical Risks Affecting Mining Investments

Mike Beare Corporate Consultant (Mining Engineering)

SRK UK

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About the Speaker About SRK •Established in 1974 in South Africa •Global company with over 1,400 staff, augmented with some 150 associates

80% of our fees through using own staff Enables SRK to invest in developing skills & technologies

•Major global mining consultancy Geological Modeling Mine design & planning Environmental impact assessment & water management Due Diligence

•Owned by employees •Global turnover USD250 M

• Chartered Engineer, Member of the Institute of Mining, Material and Metallurgy

• Joined SRK in 2004 after 10 years in Tanzania working on the construction of Bulyanhulu Gold mine

• 23 feasibility studies on projects around the world

• As a result, over USD 3 billion of mining investment has occurred

Introduction (1)

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SRK Presentation Structure Table of Contents • What are investors looking for? - Country

and government • What are investors looking for? - Technical

points • Geological background • Why is data so important ? • Greenfield and brownfield investments • Why are all deposits not viable? • How much is a project worth? • Summary of Conclusions and

Recommendations

Introduction (2)

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• Legal stability • Fiscal stability • Clear rules • Enforcement • Accountability • They want a ‘good deal’ – money is safe, return

is guaranteed, tenure path is clear, incentives (usually fiscal) always help

• Like a story / narrative, for example ‘Tanzania has just opened up for investors after 30 years’

• Exploration is competitive - what are other countries doing?

What are Exploration Investors Looking for? (1) – Country and Government

The picture shows and in-situ chocolate deposit

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• Prospectivity – mined in the past, under explored, new mining district

• Reliable information – who prepared it, when was the work carried out, what standards were followed

• Detailed information • Ideally, a Feasibility Study for some

investors egg an old mine • Good exploration data for others – juniors

wishing to add value. These companies want cheap licences to ‘spend the money in the ground’

What are Exploration Investors Looking for? (2) - Technical Issues

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• Coal South Wales, midlands, north England and Scotland

• Copper Anglesey Paris Mountain • Fluorite Blue John in Derby • Gold Welsh mines at Gwynfynneth

and Dolaucothi, Scotland's Connonish, N.Ireland's Curriginalt & Cavanacaw

• Lead-Zin Ireland's Navan, Tara, Galmoy deposits

• Potash Boulby, YPP, Yorkshire • Slate N.Wales • Tin Cornish tin province, South

Crofty, Wheal Jane etc • Tungsten Devon's new Hemerdon mine

Mineral Deposits and Metallogenic belts of the British Isles

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• Aluminium Karstic bauxite deposits in the Turgay Basin & Kushmurun • Barium-Strontium FeMn ores in Atasuyskogo, Chiganak & Aksay, Mangyshlak • Boron-Magnesium Evapourite deposits of Inder, Satimola • Coal Karaganda & Ekibastuz, Ubanganskogo, Maykubenskogo & Korzhunkulskogo • Copper Lake Balkhash region, sandstone-hosted Zhezkazgan & the Porphyry deposit of Kounrad; Aktogai, Akbastau-

Aydarly, Bozshakol, Samarskoye • Copper-Lead-Zinc Rudnoaltayskaya & Leningorskoye, Artemevskoye, Berezovsky, Bilousivsko, Zmeinogorsky & Irtysh deposits • Diamonds Mugodzhary Mountains, Kokchetava • Gold Stepniak, Aksu, Vasilkivka, Bestyube, Zholymbet, Zhanatyube etc of the Severokazakhstanskoy Province,

Bakyrchikskoye, Suzdal, Akbakayskoye, Zhetygarinskoye, Tokhtarovskoye, Komarovskoye • Iron Kostanai Turgay bands • Iron-Manganese Atasuyskom & Karazhan, Kenytube, Kay store & Usch-Katyn complexes • Lead-Zinc Central Kazakhstan Uzynzhal, Akzhal, Karagaily & Southern Kazakhstan Djungarian Mountains & Karatau • Nickel-Cobalt-Chromium Weathered Ultramafics and world class podiform chromite deposits of the Kempirsaisky array • Salt Salt domes of the Caspian Sea, salt lakes in the Aral Sea area • Semiprecious stones Aktas piezo-quartz, Itmurundy jadeite, Sarykuboldy & Betpakdala chrysoprase, Kishkenesor hematite,

Tantalum-Niobium-Lithium-Tin Belogorsky pegmatite group in the Kabala Mountains • Tungsten-Molybdenum-Tin Griessen-vein deosits of the Akchatau-Jambul trend such as Shalgam, Koktenkol & Upper Kairakty, • Uranium Fish bone deposits of the Mangyshlak clays, coals of the Ily valley & N.Kazakhstan, sedimentary deposits of

Uranium-Molybdenum Vein deposits of the Kokchetav Massif • Vanadium Mangyshlak Peninsula black shales • Zeolites Dzungaria

source : Geological Museum of Kazakhstan

Mineral Deposits and Metallogenic belts of Kazakhstan

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There are over 60 Mining and Smelting projects in Kazakhstan These account for 27% of GDP, that is GBP 35 billion compared with only few million in the UK.

Reserves world ranking • 2nd for Lead • 3rd for Manganese • 5th for Copper Production world ranking • 1st for Uranium • 2nd for Chrome • 4rd for Titanium and Magnesium • 5th for Rhenium • Significant for Zinc, Lead, Iron, Copper source : USGS KZ report 2013 http://www.kazakhembus.com/content/mining-smelting

World Class Mineral Wealth of Kazakhstan

http://www.kazakhembus.com/content/mining-smelting



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© SRK Consulting (UK) Ltd 2016. All rights reserved. Even the best data can be misleading

• Even quality data about a mineral deposit can be misleading

• First we drill some holes to collect data • The holes are assayed to determine

metal content

• Black colour indicates the presence of a mineral

Why is Data so important? (1) – An example

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© SRK Consulting (UK) Ltd 2016. All rights reserved. This is just one interpretation

• A geologist makes an interpretation

• Geology must be understood

• A good interpretation will consider multiple types of data eg structures, dating, sequence, geophysics, density, assays etc. etc.

Why is Data so important? (2)

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© SRK Consulting (UK) Ltd 2016. All rights reserved. Even the best data can be misleading?

• The intersections may join up

• More data = more accurate interpretation

Why is data so important? (3)

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• Mineral deposits are natural phenomena – they don’t follow rules

• Two geologists = two interpretations

Why is data so important? (4)

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• It could look completely different when you come to mine it or have a lot more data

• This is why so much data is need to prove a ‘Reserve’ for mining

• Exploration for mineral deposits is risky and even if there is a known occurrence – that is just the start of a process

Why is Data so important? (5)

(Source: Mining & Geology for Idiots, Nedbank, South Africa)

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Greenfield Exploration – generally high risk

• No known mines or prospects

• Requires background data – rocks must be the right age, chemistry etc – correct setting

• Some companies may do their own research (what is the next big thing eg Helium)

• Others may rely on data from other companies (unsuccessful exploration programs ?)

• Or government data – sponsored programs

• Typically starts with soil sampling or geophysics

• Many near surface targets have been found

Greenfield vs Brownfield Considerations (1)

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Brownfield Exploration – generally lower risk

• The operating mine, old mine site, industrial complex, • Could have legacy issues - indemnity • Has a track record in the past • There may have been economic changes since it was

closed eg commodity prices have increased or technology has advanced

• These facts could be critical in its current value • Issues that investors may look for:

• Presence of vanadium that can present metallurgical issues in an iron ore project

• Concentrate quality from a zinc project • The old mine was low grade, are there higher grade

extensions • What role can new technology play? • Can bulk mining be considered ?

Greenfield vs Brownfield Considerations (2)

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Resources vs Reserves The Humble Cut-off Grade

• Grade of any deposit is key to economic viability • Tend to be two extremes – small tonnage deposit but high

grade or large tonnage with low grade • Cut off grade (CoG) is key to assessing a deposit viability

and is a function of commodity price, grade of the deposit, process recovery and operating costs for mining and processing

• The CoG is the grade or amount of contained metal that is required to cover the cost of mining and processing the ore

• The average grade of the ore from the mine must be higher than the CoG – this is because the CoG is based on the operating costs and a reasonable margin is required to pay back capital investment

• If you have a list of copper deposits and the grade is less than 1% then is will not be attractive to investors because many know that the basic economics require more grade

• Recovery. A deposit with 1% copper may have an ore where only 70% of the copper can be recovered with current technology. This factor must always be considered especially in polymetallic deposits

• A Resource is a concentration of a mineral that has reasonable prospects of economic extraction

• A Reserve is a concentration of a mineral that is economic to mine under prevailing conditions

• A resource may remain a resource until high commodity prices are higher or technology allows metal to be recovered

Why are all deposits not viable?

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ProductionDetailed Engineering

Feasibility Study

Pre-Feasibility Study

Scoping Study

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More investment in the project, the higher the value

How much will investors pay for a deposit / project?

Project value USDM

• Kz has lots of early stage projects – but they are not worth much

• Advanced projects are worth more but require risk capital to be invested

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Recommendations Conclusions • Exploration and mining are competitive and cyclical

industries – government support is vital to building a successful industry

• Technical risk will always be there – governments are going to need to find ways to make investment attractive

• What ever the stage of the project, good data is needed for both sides to prosper – both seller and buyer

• Governments have to assume some risk if they are to participate in exploration and derive the best value

• Early stage projects never have a high sale value – if cash is desired, project must be developed – potential needs to be proven

• For known projects / prospects – consider drilling programs and preparing technical studies then putting them out to tender / auction to add value. Also consider legacy issues and indemnities

• For exploration – consider regional geological mapping, structural studies, geophysics, early stage sampling to generate data that is attractive for junior companies who are considering exploring in Kz

• Make granting and transfer of licences faster and more transparent

Summary of Key Points

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