Issues and Trends Impacting Mining Exploration Today
CESCO Exploration Forum Santiago, Chile
7 April 2014
Tim AlchV.P. & Senior Minerals Business Analyst
Behre Dolbear & Co.+1.845.480.1434
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2
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and at our website www.dolbear.com and available upon request
3
Recent and current trends
All resources are not economic
Issues to examine and consider
4
Overview
5
Metals Prices Rose in Past 10 Years, Especially
Relative to Price Cycles Since 1970
Data Source: USGS and LME
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
7.000
8.000
9.000
10.000
$ P
er T
on
ne
Nic
kel
$ P
er T
on
ne
(Cop
per
, L
ead
, Z
inc,
Alu
min
um
)
Nominal Industrial Metal Average Prices
1970 – 2012
Aluminum Copper Lead Zinc Nickel
Capital
Destruction
Capital
Creation
Capital
Destruction?
Global Economic Growth Improving
GDP growth best since Global Financial Crisis
China 7+% today is greater than 10% in 2005
USA steady modest growth may be leading
Europe appears to be healing, growing
Emerging Markets may surprise too
6
Growth Uneven Since Global Financial Crisis,
Is Forecast to Strengthen(Real GDP Growth - Year over Year %)
’00- ’09 2009
GFC
2010 2011 2012 2013e 2014 f 2015f
USA 1.9% -3.5% 2.5% 1.8% 2.8% 1.9% 2.8% 3.0%
EuroUnion 1.0% -4.2% 1.9% 1.6% -0.6% -0.4% 1.1% 1.4%
OECD 1.3% -3.7% 2.9% 1.8% 1.4% 1.2% 2.1% 2.2%
Non-OECD 3.8% -1.5% 5.6% 4.8% 3.5% 2.5% 3.3% 3.7%
Brazil 2.9% -0.2% 7.5% 2.7% 0.9% 2.2% 2.4% 2.7%
Mexico 1.3% -6.1% 5.1% 4.0% 3.8% 1.4% 3.4% 3.8%
Peru 4.8% +0.9% 8.8% 6.9% 6.3% 4.9% 5.5% 5.9%
China 9.4% +9.2% 10.4% 9.3% 7.7% 7.7% 7.7% 7.5%
India 7.4% +9.1% 9.1% 7.0% 5.3% 4.9% 5.8% 6.5%
World 2.3% -2.3% 4.3% 3.0% 2.5% 2.4% 3.2% 3.4%
Source: World Bank Global Economic Outlook January 2014, June 2012
8
Emerging Markets Are Where Most
People Live and Economic Growth Is
Source: The Economist
Urbanization, industrialization in China, Asia, India, the Americas, Mid East, Africa, etc. drive industrial metals and energy demand
Security and stability of supply concern China, Korea, Japan, Mid East, etc. and of some industrial companies, e.g., technology or critical metals, fertilizer minerals, energy fuels (coal, uranium), etc.
Constraining supply: Declining ore grades and spending; High costs; Few large deposits; Governments; Changing Politics; etc.
Metals supply may struggle to meet demand in longer term
Prices may stay above long term average
Sporadic price spikes may/can/do occur
9
Reasons To Be Optimistic About
Industrial Metals Demand, Longer Term
China’s Population Continues to Urbanize
10
China’s Largest Mass Migration in History is Not
Done, Nor Are the World’s Rising Middle Class
In next 20 years, ~325 million more people to move to China’s urban areas
China’s middle class may double to 600+ million people by 2020
Worldwide ~2 Billion more people will be in urban areas in 2030
11
Worldwide Trend: More Money, More Consumers, More
Infrastructure = More Metals Consumed
Greater Per Capita GDP = More
TVs, Phones, Refrigerators, Heaters, Air
Conditioners, etc.
13
Source: Teck Investor Day Presentation November 2013: Dragonomics
We All Want Clean Clothes, AC, Hot Water,
Fresh Food, TV – Modern LivingDeveloping countries will continue to drive
long term demand for metals
14
Copper Used in a Typical New Apartment in China
(Source: Goldman Sachs, Bloomberg)
Kilograms
(kg)
Pounds
(lbs)
Stove 4.6 10
Water Heater 0.5 1
Air Conditioner 20.0 44
Washing Machine 0.8 2
Refrigerator 2.0 4
Flat Screen TV 0.1 0
Apartment Wiring 13.0 29
Total 41.0 90
15
As the World Modernizes, We Use More and
More Steel and Copper 1900 - 2012(Steel Use LHS : Copper Use RHS)
Source: World Steel Association, International Copper Study Group – Presented at Glencore Investor Day Presentation 10 Sept 2013
In Least Robust Scenario to 2030,
11 MT of More Copper May Be Needed
16
Source: International Copper Study Group – Presented at Glencore Investor Day Presentation 10 Sept 2013
World Copper Mine Production: 1900-2012
Production in 2013e ~18.0MT
17
Since 1900, when world production was less than 500 thousand tonnes copper, world copper mine
production has grown by 3.2% per year to 16.7 million tonnes in 2012. SX-EW production, virtually
non-existent before the 1960s, reached nearly 3.7 million tonnes copper in 2012.
Source: International Copper Study Group – ICSG Copper Fact Book 2013 & PR 20 March ‘14
Refined Copper Usage by Region
1960, 1980 and 2012
18
Source: International Copper Study Group – ICSG Copper Fact Book – 2013
Growth in refined copper usage has been especially strong in Asia, where demand has expanded more than five-fold over the last 30 years.
Slower Growth 7+% in China Today,
In Absolute Terms Is Double 2005
19
Source: Ministry of Commerce and Industry & CEIC Generate – Presented at Teck Investor Day November 2013
China Consumes Half the World’s Metals, Energy
Source: UBS
20
Copper Mine Production by Top 20 Countries 2012 (000 tonnes)
21
Source: International Copper Study Group – ICSG Copper Fact Book – 2013
Chile accounted for over one-third of world copper mine production in 2012 with mine output of over 5.4 million tonnes copper.
22
Copper Mine Production by Region
1960, 1980, and 2012 (000 tonnes)
Source: International Copper Study Group – ICSG Copper Fact Book – 2013
From less than 750,000 tonnes copper in 1960, copper mine production in Latin America rose to
more than 7 million tonnes in 2012. What China produces it consumes.
China’s Share of Global
Metals Use May Level Off
Source: The Economist and UBS
23
Mining Capex Lagged Rising Metal PricesNow Many Projects Are Being Cancelled
Since prices softened in ~2011
So have funding commitments
Projects have been cancelled
Exploration spending severely cut
Per Unit of Annual Production (US$)
Metal Prices Are Off Their Peak and
Down Since Last Year2006
Avg
Price
2007
Avg
Price
2008
Avg
Price
2009
Avg
Price
2010
Avg
Price
2011
Avg
Price
2012
Avg
Price
2013
Avg
Price
2014
Mar 26
2014
Mar 26
vs
2013 Avg
2014
Mar 26
vs
2011 Avg
Aluminum
($/lb)1.16 1.21 0.83 0.83 0.99 1.09 0.92 0.84 0.80 -5% -27%
Copper
($/lb)3.05 3.25 1.62 2.34 3.42 3.99 3.61 3.32 3.04 -8% -24%
Lead
($/lb)0.58 1.18 0.56 0.78 0.97 1.09 0.94 0.97 0.93 -4% -15%
Nickel
($/lb)11.01 17.25 4.62 6.65 9.87 10.38 7.95 6.81 7.12. +5% -31%
Zinc
($/lb)1.48 1.50 0.52 0.75 0.98 0.99 0.88 0.87 0.90 +2% -9%
Gold
($/oz)604 695 736 973 1,225 1,573 1,670 1,413 1,295 -8% -18%
Silver
($/oz)11.55 13.38 9.31 14.64 20.10 35.12 31.15 23.79 19.82 -17% -44%
25
As Capital Costs Rose So Did Sustaining and Operating Costs
26
Capital Intensity of Copper Projects
Almost Tripled From 2002 to 2011
Source: Dundee Securities Xstrata
Copper Mined Today Is From Lower Grade
Deposits = More Movement, Processing, Costs
27
Source: Wood Mackenzie – Presented at Glencore Investor Day Presentation 10 Sept 2013
28
Copper Cash Cost Curves 2000, 2007 and 2011 (US¢/pound)
C1 refers to cash costs, i.e., labour, energy, mining, processing
Source: Brook Hunt
Mining is Cyclical, 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
Many already have, especially in the past two years
Risks in mining are technical and non-technical and vary
Behre Dolbear does not forecast prices. We focus on geo-technical, operating, business, financial risks and issues impacting exploration, development and operations
29
Metals and Mining Equities Are Down
Drying Up Funds For Exploration
Since 4Q11, investors had less interest in Global and North American mining equities and favored broad general market indices
A risk-off attitude is plaguing mining equities – still today – directly impacting capital available to fund exploration, development etc.
30
ACWI = iShares MSCI ACWI ETF (worldwide equity index) BWMING = Bloomberg LP worldwide mining index
0
20
40
60
80
100
120
140
160
180
0
5
10
15
20
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35
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
0
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60
0
50
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1/1/2010 1/1/2011 1/1/2012 1/1/2013
World Mining Index
BWMING Index ACWI
Current Environment for Mining Investment in
Exploration, Development etc. is Challenging
2013 was plagued with less GDP growth, weaker metals prices
– China’s GDP is at ~7.5%; 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, and SOEs taking greater interest in mining
31
Shift From Growth to Cost & Capex Control
Executives cut capex, refocused spending on higher quality assets, suspended projects and are partnering on certain projects
Private equity may capitalize on low valuations
Alternative, non-traditional investors SOE, SWF may opportunistically fill the gap
Strategic transactions may drive M&A
Tough markets may continue into 2015
Plus energy, power, water, labor, local issues impact funding and raising uncertainty
32
33
Top Ten Risks Facing the Mining and Metals Industry
Over Six Years – by E&Y 2013-2014(in red remained in top 10 over 6 years)
2008 2013
1. Skills shortage
2. Industry consolidation (not threat in ‘13)
3. Infrastructure access
4. Maintaining social license to operate
5. Climate change concerns (under radar in ‘13)
6. Rising costs (margin improvement)
7. Pipeline shrinkage (under radar in 2013)
8. Resource nationalism
9. Access to secure energy (under radar in ‘13)
10. Increased regulation (under radar in ‘13)
1. Capital dilemmas – Capital allocation and access – (new in 2009)
2. Margin protection and productivity improvement (was cost inflation)
3. Resource nationalism
4. Social license to operate
5. Skills Shortage
6. Price & currency volatility (new in 2010)
7. Capital project execution
8. Sharing the benefits (new in 2012)
9. Infrastructure access
10. Threat of substitutes (new in 2013)
Not All Resources Are Economic
• Markets are not static, nor are prices or costs
• There are many variables and a long period of time is involved. If it sounds too good, it likely is
• Inexperience, misleading statements, questionable practices require knowing who you are dealing with
• Best to have local presence, know how to do business
• No good substitute for independent technical opinions about geologic assumptions, methods, estimates by qualified experts re reasonableness, business potential
• Investors want/need independent verification
34
35
Finding and Evaluating Ore Is Costly
and Risky, With No Guarantees
36
Exploration To Discovery Is Just The Start,
From Discovery to Start Up Can Be ~17 Years Smaller, Discrete Targets Can Be Quicker
Depending on the Location, etc.
Source: Stephen Enders from Eurasian Minerals at SME
Current Trends in Mining Finance Conference April 2013
Study Technical & Non-Technical issues with expert, trained eyes
• Property Information
• 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
Many, most projects today are delayed for non-technical reasons
37
Success Is Driven Not Only By Geology
Given the Time and Large Capital Involved
Mining Companies Need Stable Rule of Law
Projects and investors need to have stable rule of law to
earn competitive returns and maintain access to capital
thru cycles and volatile market conditions
Attracting investment is competitive and is impacted by
local economic and political systems, societal
issues, taxes, rules and regulations re
permits, corruption, etc.
Planning for different, changing risks is difficult
38
Mining companies, investors need confidence they have stable agreements that accommodate variable market conditions over long periods
Stakeholders evaluate projects in a risk-adjusted manner seeking to reduce risk exposure
Changing taxes, royalties, etc. deters investors
Countries perceived to have 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
39
Uncertainty in Mining Deters Investment
The Americas is a Favorite Investment Destination
As shown in 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)
Canada, Brazil, Chile, Mexico, Peru consistently rank among the highest
40
RegionInvestments (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
Mining And Exploration Is Core To Building Wealth
There is a positive correlation between growth of a nation’s wealth and prosperity of its mining and minerals processing industry
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
Only when a country recognizes critical need to adapt and restructure burdensome policies – will it truly optimize its economic potential
41
Attracting Investment Today is Very Competitive
• Investors can feel stymied by inconsistent, convoluted and changes in mining policy and terms and require trust with local stakeholders
• Changing taxes, royalties, etc. deters investors that require stability and consistency to earn a return and access to capital markets
• Local, state and federal level governments should work with and know operators and investors respond to stakeholder expectations
• To increase investment consistent, efficient law enforcement is best:
– Certainty – Security of Title/Tenement
– Confidence – Development Approvals
– Confidence – Social and Environmental Issues
– Confidence – Tax/Royalty Regime
– Acceptable Level of Sovereign Risk
42
Many People with Different Goals and Horizons
Geologists optimistically look for lode
Developers look for funds and mines
Bankers, Investors look for returns
Local people want jobs and stake
Governments want a piece
Mother & Human Nature can be at odds
43
Important Is To Have A Strategy To Realize Value
44
45
Applicable Valuation Methods By Stages
Exploration Stage
Development Stage
Feasibility Stage
Operating Properties
Company Reclamation Royalty
Properties
Income Approach Cash Flow
X X X X X
Market-Related Transactions
X X X X X
Market Multiples X X X Option/Real Option Values
X
Monte Carlo X X Replacement Cost X X
46
Relative Values By Stage Precious & Base Metals Indicative, Very Rough, Rules of Thumb
Precious Metals Base Metals
Early Exploration
Inferred Resources
Measured & Indicated Resource
Feasibility
Production
5.0 – 7.5
1.5 – 2.5 1.0 – 2.0
2.5 – 5.0 2.0 – 3.0
3.0 – 5.0
10.0 – 15.0 5.0 – 7.5
20.0 + 10.0 +
47
Valuations Should Utilize
More Than One Valuation Method
Theories Do Not Pay You
What is Some One Willing to Pay You?
No good substitute exists in-place of hands on knowledge, work, field experience when advising mining companies, investors, lenders, governments. All benefit from qualified expertise to:
Evaluate the inherent, unknown, business risks
Act as resident skeptic, test reasonableness of estimates, etc.
Rate, rank and opine on whether various project risk(s) are:
– High Risk - pose an immediate danger of failure, if uncorrected, may have a material effect (>15%) on project cash flow, performance and could lead to project failure
– Moderate Risk - if uncorrected can have significant effect (10%) on project cash flow and performance unless mitigated by some corrective action
– Low Risk - if uncorrected, may have little or no effect on project cash flow and performance
48
Truly Independent Opinion is Invaluable
Often 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
Always best to be prepared and sleep at night
49
When To Call An Expert
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, that is evaluated by financial institutions in their decision-making process
– 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
50
Three Levels of Engineering Studies
Seeing Into the Future is Hard
51
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies (1)
CATEGORY – Illustrative not exhaustiveCONCEPTUAL
STUDY/SCOPING STUDYPRE-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.)
52
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies (2)
CATEGORY – Illustrative not exhaustiveCONCEPTUAL
STUDY/SCOPING STUDY
PRE-FEASIBILITY
STUDYFEASIBILITY 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%
53
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies (3)
CATEGORY – Illustrative not exhaustiveCONCEPTUAL
STUDY/SCOPING STUDYPRE-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%
54
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies (4)
CATEGORY – Illustrative not exhaustiveCONCEPTUAL
STUDY/SCOPING STUDYPRE-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%
55
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%
56
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies (6)
CATEGORY – Illustrative not exhaustiveCONCEPTUAL
STUDY/SCOPING STUDYPRE-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
57
Characteristics of Scoping, Pre-Feasibility,
and Feasibility Studies (7)
CATEGORY – Illustrative not exhaustiveCONCEPTUAL
STUDY/SCOPING STUDYPRE-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
As an operator and or investor it is important to know and
beware of geo-technical issues, costs, availability of secure
low cost power, skilled labor, infrastructure, local issues etc.
that impact investor returns. Today, in certain places:
New regulations, agencies, enforcement
officials, mechanisms create uncertainty and add to cost
Changing taxes, tariffs, royalties, takings, etc.
Licenses, permits and titles are less certain
Local opposition discouraging investment
Corruption, lack of transparency & accountabilty exist
All divert exploration dollars from going into the ground
58
Know Your Neighborhood
Future is Bright, Focus on Local Risks
Our Modernizing World needs copper and other metals
Investors, lenders favor projects in areas where
governments, industry and local people are working to
create favorable investment environment
Management of political, regulatory, local risks, have in
place quality assurance/quality controls and procedures
and demonstrate good local stewardship are essential
Think long term and act with local conditions in mind
The combination of managing technical & non-technical
issues and risks help increase odds of project success
59
Behre Dolbear
Provide technical, operating, financial, management
quality assurance/control risks and valuation studies
Advise clients in
mining, banking, investment, financial, legal and
accounting sectors and government agencies
We provide specialized and complementary services
– Technical Consulting
– Engineering Services
– Valuation and Financial Advisory
– Management Consulting
– Environmental and Societal Services
60
Behre Dolbear
To meet client requirements, we select, integrate and manage our highly qualified and experienced specialists
– Each selected for specific skill-set and ability to give highest levels of insight, advice & recommendations
– Have experience in all technical & non technical issues & risks impacting brown & greenfield projects and providing lender due diligence, project monitoring and management advisory roles
– If other skills and experience are needed, our depth of talent and flexibility allows us to deliver them swiftly and efficiently
Tim AlchV.P. & Senior Minerals Business Analyst
Behre Dolbear & Co. +1.845.480.1434
61
Behre Dolbear - A Worldwide Resource
62