The Life Cycle Of A Gold Mine

THIS PRESENTATION

Aims to educate Investors about the distinct phases in successful mine development. Namely:

Outlining a mineral reserve

Mine construction

Mine operation

Post-mine reclamation

We will focus on operational and financial hurdles that exploration companies must overcome

PART 1: STAKING THE CLAIM

PART 1: STAKING THE CLAIM

Step #1 is selecting an area for prospecting

This is the very foundation of a mining venture

An error at a crucial time in this process can cause major headaches later on

An educated investor should understand the basic process for staking a mine

Part 1a: Background Research

Market research is an important factor in mineral exploration

Different forms or research are conducted through the life cycle of a gold mine

Determines how much gold must be found to make a project economically feasible

Miners also consider factors including: local taxes, regulations and infrastructure

Part 1b: Leasing Politics

How mineral rights are leased depends on the country or state where the property is located

Investors should be mindful of the political climate in the region the miner is prospecting

Pro-mining countries offer “split-estates” where mineral and surface rights can be separated

Separate mineral/land rights save money and require shorter-term commitments

Part 1c: Choosing A Site

Miners must usually be granted mineral rights before they have physical access to the land

In some “Hot spots” miners will decide to lease land without performing preliminary data collection

Likelihood of a mineral deposit is based on regional geology

Geologists use this data to narrow down the

search area for a potential deposit

Part 1d: The Lease

After an area of interest is found, the company will apply for a mineral lease, permit or license

Generally only companies that hold a prospector license can apply for a mineral lease

This entitles the company to conduct surface exploration

Companies are usually required to submit proof of exploration to keep their lease

PART 2: REGIONAL EXPLORATION

PART 2: REGIONAL EXPLORATION

The next phase in the life cycle of a gold mine (exploration) is the longest and riskiest

The goal of this phase is to collect data regarding the potential of a mineral reserve

Essentially the company is trying to decide whether the property has a feasible gold deposit

Part 2a: Regional Analysis

Many properties have a history of exploration work

Drilling is conducted with the purpose of furthering the knowledge about a mineral deposit.

Investors should pay attention to average grades and drill cores that “start and end in mineralization”.

If the company finds evidence of a deposit they will continue exploring. If not, they may abandon the property all together.

Part 2b: Financing

The cost of exploration can easily run up to one quarter of what actual mining costs

Most mining companies will try to raise capital during the exploration phase

As a shareholder, you don’t want the company to dilute shareholder value

But you do want to ensure they have enough money to conduct exploration

Part 3: RESOURCE DEFINITION + FEASIBILITY

Part 3: RESOURCE DEFINITION + FEASIBILITY

The processes in resource definition are similar to primary exploration

In this phase the company will spend more money as they anticipate a higher chance of success

Not only is the size and grade of the reserve tested but engineering studies are performed to establish mining method and extraction cost

Part 3a: The Feasibility Study

The feasibility study is the key development in this phase

This study analyzes sampling, test work and engineering analysis to determine whether a project has the right economics to be developed into a mine

While data collection is left up to the company, the validity of the data is measured against SEC guidelines

Not all projects make it through this phase

Part 3b: Scoping Study

This involves analyzing drilling and sampling to define a resource and determine the best mining method

Scoping studies typically identify technical issues that will require additional examination

Generally, the result of this study is an order of magnitude assessment of capital and operating costs

Part 3c: Preliminary Feasibility

Preliminary Feasibility involves using engineering studies for a more in-depth look at resource extraction

The company will examine environmental and permitting issues during this phase

Reserves can sometimes be declared at this point depending on the level of detail in the study and the securities exchange that is involved

Part 3d: Feasibility

This is a more comprehensive preliminary feasibility study

In this phase, mine design, production schedule, gold recoveries, plant design and expenses are considered

During a feasibility study gold reserves can be declared

After the feasibility study, the company will decide whether or not to proceed with mine development

Part 3e: Bankable Feasibility Studies

A Bankable Feasibility Study is often misunderstood as to mean the project is feasible

Adding the term means that the study is sufficient for outside financing provided the project is feasible

To be clear; “bankable” only describes the level of accuracy of the analysis and has no relation to the project’s feasibility

Part 3e: Importance Of Feasibility Studies

Scoping and prefeasibility are important because they can identify potential problems

Once a company announces a feasibility study there is pressure for them to see this to conclusion

Companies who abandon projects that are unfeasible should not be looked at unfavourably

If the economics are not there, the company is best off pursuing another project

PART 4: ASSESSMENT AND APPROVAL

PART 4: ASSESSMENT AND APPROVAL

No matter the value of a mineral deposit, the company must properly present the economic and socio-economic impacts of the mine

The goal of the assessment phase is to investigate how mining will affect environment and community

As mining is overseen by the govt. precise

assessment steps are determined by the

govt. in the country the mine is to be built

Part 4a: Permitting

The entire life cycle of a mine is laden with permits

During this process, the company will present to the required agencies comprehensive documents outlining impacts and how these will be mitigated

The nomenclature of this study varies but is generally known as an Environmental Impact Study

Part 4b: The Environmental Impact Study

The EIS must be completed before a miner can be granted a license to build a mine

In this study impacts on wildlife, habitats, noise, air and water pollution are tested

The EIS is disclosed to agencies making the decision about permission to build

If the EIS is rejected, the company is usually given the chance to make adjustments

Part 4c: Reclamation

Reclamation is a separate process but is always considered as part of the assessment process

Mining companies must address how they will reclaim the land when the mine closes

Govts. are extremely interested in and pay close attention to reclamation plans

Many govts. require the company to provide collateral towards reclamation

Part 4d: Financial Considerations

In order to build a mine, a mineral deposit must be valuable enough to cover the costs of:

Design

Construction

Operation

Closure

Reclamation

While the assessment can seem tedious, it also provides a sense of security to the investor

PART 5: MINE CONSTRUCTION

PART 5: MINE CONSTRUCTION

Once the company obtains the right permits and approval, construction starts

Mine construction generally takes a few years, depending on the mine location, complexity and regulations

While investor might see the “risky” phase as being over, they should still keep an eye on development reports

Part 5a: Preliminary Construction

After approval, but before construction, the mine must be prepared for development

Pre-construction steps include removing old buildings, developing infrastructure and building camps for workers

Miners must adhere to the environmental standards laid out in their permits during this phase of development

Part 5b: Mine Construction

Mines can grow large enough to support towns, with schools, medical facilities and recreation areas

In terms of Gold mines, there are two main type to consider: open pit (surface) and underground

Open pit mining is the most common and produces about 85% of the minerals

Many mines are a hybrid of both types

Part 5c: Regulation

Once construction has begun, there are still pitfalls that can delay the company moving to operation

Construction requires huge capital expense and strict adherence to guidelines

Protests can be a major threat to the timely development of mining sites

Even if the Govt. hears these concerns, this can result in substantial delays

PART 6: OPERATING A MINE

PART 6: OPERATING A MINE

Operation is a dynamic and exciting phase in the life cycle of a mine

The operation phase is complex and requires a great deal of management

The miner puts considerable effort into implementing and adjusting key operational strategies when extracting ore

Part 6a: Mining Has Started, Now What?

During this phase, miners rely on their strategy to determine how profitable the mine will be

Important considerations during operation include:

Resource expansion ahead of mining

Minimum cut-off grade of gold

Overall macro-economic picture for gold

In line with this, the company must keep a keen

eye on the market price of gold

Part 6b: Profitability

Factors that influence a mine’s profitability are either controllable or “uncontrollable”

Controllable factors include; waste rock extraction and operating costs

Uncontrollable factor are either; geological, like depth + grade or financial like the market price of gold

Part 6b: Social + Environmental Concerns

By following sound environmental and social practices miners develop a good reputation

A good reputation is important for securing permits on future projects

By not following environmental best-practices, miners open themselves up to legal issues

PART 7: REHABILITATION

PART 7: REHABILITATION

Once a gold reserve has been exhausted, the owner must rehabilitate the site

Mining is contingent on the miner providing a feasible rehabilitation program

Most governments require the miner to provide some kind of financial assurance to cover the costs of rehabilitation

Part 7a: Objectives

A properly laid out rehabilitation program has many clearly stated objectives. Potentially including:

Ensuring public health and safety Minimizing environmental effects Removing waste and hazardous material Preserving water quality Stabilizing land to protect against erosion Establishing new landforms and vegetation

Part 7b: The Significance of Rehabilitation

While the investor might not see this phase as being important, it can have huge impacts on the long-term success of a mining company

Companies that do not follow proper rehabilitation program face costly lawsuits

A company with a poor history of correct rehabilitation may have difficulty obtaining future permits

Part 7a: Underground Rehabilitation

Underground mining results in significantly less surface disturbance than open-pit mining

Care is taken to relocated stream and wildlife

Rehabilitation will be undertaken as the operational phase is winding down

Drainage is carefully designed to make the new land surface as stable and resistant to soil erosion as possible

Part 7a: Open-Pit Rehabilitation

Rehabilitation of an open-pit mine is a significantly more involved process than underground mining

The land’s post-mine end use dictates what is done in the rehabilitation process

In many cases, mine sites are not returned to

a natural state but are instead turned into

recreation sites and farmland

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