Surviving the Global Financial Crisis in the Mining Sector:

1. Surviving the Global Financial Crisis in the Mining Sector: Strategies for Junior and Mid-Market Companies Daryl J. Hodges Senior Managing Director Investment Banking 28 February 2009

2. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Jennings Capital. Neither this presentation nor part of its contents may be disclosed or used by any other purpose without the prior written consent of Jennings Capital. The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views on this date, all of which are accordingly subject to change. Jennings Capital’s opinions and estimates constitute Jennings Capital’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the asset, stock, or business of the Company or any other entity. Jennings Capital makes no representations as to the actual value which may be received in connection with neither a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects. Jennings Capital’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or compensation. Jennings Capital also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors. Jennings Capital Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with Jennings Capital of any of the matters addressed herein or for the purpose of avoiding tax related penalties. This presentation does not constitute a commitment by Jennings Capital to underwrite, subscribe for or place any securities or to extend, arrange or provide any other services.

3. Monday: September 29th, 2008…

4. … and More Recent Headlines (Feb 27th, 2009)

5. Credit Freeze & Financial Crisis – Markets’ Reaction Apr-July 2008 – Certain Markets and Commodities Make New Highs; Small Caps Left out of the Rally Jan 2008 – The First Major Sell-Off in the Eq. Markets – Fed Slashes Rates in Emergency Meeting Sept – Oct 2008: Lehman Fails, AIG Bailed Out/ TARP Passes After First Being Rejected, Panic Takes Over Feb 2009 – Nov 2008 Lows Retested Aug 2007 – Credit Crunch News Hits the Eq. Markets Mar 2008 – Bear Stearns Fed Brokered Deal Aug 2008 – A slew of Negative News Hits the Markets – Freddie & Fannie Source: Bloomberg Financial Markets

6. Liquidity Crisis – Different Toll on Different Metals Source: Metalprices.com

7. Light Crude Oil (CL, NYMEX) • After an all-time high of US$ 147.27 in July 2008, oil has fallen under US$ 40.00 by January 2009; prolonged recession expectations coupled with US$ appreciation fuelled the dramatic fall in crude prices • If and when the global economy starts to recover, too many dollars chasing too few barrels will only lead to much higher oil prices Source: NYMEX

8. Equity Capital Markets: 3 Year Review • Over the last 3 years, Global, Mining and Canadian Equity Issuance – very strong; exception: 2008 • While the overall global equity sales dropped significantly in 2008, it seems Mining issues, while lower, held better than the overall markets • 1st half of 2008 saw decent volumes on Iron Ore, Potash and Coal financings • 2nd Half of 2008 – NO IPO’s on the TSX Global Equity Markets Equity Markets - Mining $622.8B raised 3,283 Issues $209.7B raised 365 Issues $556.6B raised 3,095 Issues $194.9B raised 232 Issues $377.9B raised 1,325 Issues $118.4B raised 312 Issues $21.5B raised 44 Issues $19.3B raised 184 Issues $14.7B raised 74 Issues Source: Bloomberg Financial Markets

9. High-Yield Debt Markets - Mining $199.7B raised 2888 Issues $153.4B raised 189 Issues $112.7B raised 249 Issues $20.7B raised 39 Issues $18.7B raised 73 Issues $14.2B raised 68 Issues High-Yield Debt Markets: 3 Year Review • High-Yield Global Debt Markets saw a sharp drop in 2008 from 2006, 2007 levels • Canadian and Mining specific deal were somewhat more resistant to the downturn Source: Bloomberg Financial Markets

10. Equity Capital Markets: 2009 YTD • Over the past few months - global mining stock raised more than US$ 34B in fresh non-bank cash • Largest chunk of that – US$ 19.5B: RioTinto-Chinalco deal (US$ 7.2B convertibles, plus US$ 12.3B in assets/ equity stakes)* • Gold and Silver stocks – very well received • Capital raising by Gold stocks – mainly by way of bought deals – almost US$ 4.0B: CURRENT PRODUCERS: • Newmont Mining Corp US$ 1.7B public offerings of 34,500,000 shares and US$ 517.5M principal amount of 3.00% convertible senior notes due 2012 • Kinross Gold Corp – US$414M • Silver Wheaton Corp – C$287.5M (ADVANCED) DEVELOPERS: • Osisko Mining Corp – C$402M • Great Basin Gold Ltd – C$125M* • Uranium • Cameco Corp – C$400M* • First Uranium Corp – C$61.5M *Deals not closed as at Feb 27th, 2009 Source: Bloomberg Financial Markets

11. Liquidity Crisis – Different Toll on Different Securities Recently Filed for Bankruptcy Recently Announced Very Dilutive Equity Financing Ongoing Sale of Noncore Assets, Re-negotiating Debt Covenants, Layoffs Performed Rather Well, Recently Announced Equity Financing Source: Bloomberg Financial Markets

12. Junior Natural Resources: The 2008 Meltdown • First half of 2008: tough credit, softening commodities • Volatility and liquidity: trading volumes declining and share prices falling • Deal flow showed a sharp decline, transactions were closing under issue price • Second half of 2008: financial collapse, plunging oil and copper • Trading volumes dried up, sellers wanted out - immediately • Selling down on positive news as increased volumes provided a liquidity window • Traditional investors, retail and institutional, fled the market… to cash • Resource equity financings become nearly impossible • Debt market activity shrinks to lowest level in over a decade • Result: share price collapse, severe treasury drain on junior companies • First 2 months of 2009: • Gold is in favour • Base metals still struggling

13. Where Are We Now? • Don’t get a false sense of security from the recent uptick - the panic may be over (Recall ’98-’03) • Treasuries are drained, money is scarce • Shares trading at rock bottom prices, they have rebounded slightly • Industrial commodities – at low prices again • Precious metals weak, but gold and silver is starting to look attractive as the US dollar caps • Producers balance sheets – under increasing strain; start-ups struggling; • Risk re-pricing: analysts and investors – re-rating companies; target prices dropping • Bankruptcy protection for some, extreme dilution for others • Risk re-rating: caused perceived risk to move “up market” • Bank stocks and insurance companies are considered risky – credit ratings are dropping • Juniors resource developers are excluded from many portfolios • RESULT: For many, the cost of capital is the highest we have seen it • Given the chaos in global markets, and the ongoing freeze in debt markets, mining companies are deploying conventional and unconventional ways of raising fresh capital

14. And the Casualties are Starting to Pile Up… • First Metals Inc. “Files Notice of Intention to Make a Proposal Under the Bankruptcy and Insolvency Act” (January 2009) • Adanac Molybdenum Corporation to “Evaluate Strategic Alternatives Under CCAA Protection” (December 2008) • Giant metals miner Teck Cominco cuts 1,400 jobs …“A big concern surrounding Teck is its ability to pay off nearly $10 billion in debt it incurred with the purchase of Fording last fall. This includes a $4-billion term loan and a $5.8-billion bridge loan.” (Globe and Mail, January 9, 2009) • Rio Tinto commits to reduce net debt by $10 billion in 2009 …Reduces workforce by 14,000 – (company press release, December 10, 2008) • Boart Longyear misses earnings, reduced workforce by 20% • Anglo American scraps its dividend and cuts 19,000 jobs worldwide • Xstrata’s shareholders to vote its proposed £4.1bn rights issue next week (Mon) – might not pass

15. The “New” Cost of Capital: Yield and Dilution • Recent High Yield Debt Issues: • Petaquilla Minerals: USD $60 million (October 3, 2008) (initial YTM, not including the warrant sweeter – 17.8%) • Northern Star Mining Corp: USD$42 million (September 11, 2008) (initial YTM, not including the warrant sweeter – 22.4%) • Farallon Resources Ltd: $25 million (September 3, 2008) (initial YTM, not including the common shares attached – 15.0%) • Recent Equity Financings: • Yamana Gold Inc: $100 million @ $6.00/ sh. (3.00% dilution) (52-week range:$4.29 to $19.79) • Semafo Inc.: $23 million @ $1.20/ sh. (10.00% dilution) (52-week range: $0.75 to $1.72) • Kinross Corp: US$414 million @ US$17.25/ share (5.00% dilution) (52-week range: US$7.77 to US$27.00) • Osisko Mining Corp: C$402 million @ $4.55/ share (54.00% dilution) (52-week range: $1.40 to $6.29) • Farallon Resources Ltd: $10 million @ 0.20/ sh. (14.00% dilution) (52-week range: $0.10 to $0.84) • Mercator Minerals Ltd.: $23 million @ $0.70/ sh. (56.00% dilution) (52-week range:$0.29 to $12.94)

16. Surviving the Downturn • Two choices: • Hunker down: slash spending, husband cash, and weather the storm • Seek creative, or non-traditional, financing strategies in the secondary market to continue advancing the company, and prepare for the next upturn • Actually, there is only one choice… do both! • High Yield Debt Financing • Convertible Debentures • Flow-through Shares • Off-take Agreements, Strategic Investors • Royalty Agreements • Forward Sales • M&A • Where to Seek the Funds (Who is Providing Funds) • Requirements • Deal Structures • Recent Examples • Consider which of these could suit your Company, and get advice

17. Alternative Sources: High Yield Debt • Most commonly issued for project financing, situations in which banks – not willing to lend, or conditions too onerous and time is of essence • Broad distribution– multiple buyers/ lenders, can be issued as a private placement or more broadly under a prospectus: • Market to a wide cross section of equity, debt, and high yield portfolios • Retail demand –strong • Domestic and international exposure • Customize to the majority of lenders, no single party drives the process • Debt instrument is secured (commonly) or unsecured (rarely), provides a high priced coupon, offered at a discount, and often accompanied by an equity “kicker” • Typically less onerous covenants compared to a classic project financing or bank debt: • Full bankable feasibility study not necessary, but assurances of success need demonstration • Metal hedging can take place at a future date, at the Company’s discretion • Less onerous reporting requirements– reasonable financial stress tests • The high coupon and wide distribution can make the situation stressful, if deadlines are difficult to meet or the issuer needs to negotiate changes to the original deal • Current conditions –leading to extremely costly financings; difficulty in meeting debt obligations: • ALL lenders have become extremely nervous • Use as a bridge loan until other forms of financing are available

18. Alternative Sources: Convertible Debentures • Similar application as High Yield Debt, Convertible Debentures: a hybrid debt – equity instrument • Debenture: secured and pays a coupon over its term • Conversion feature: can convert into shares of the company at a future date, usually at a higher price • Distribution: investors view convertible debentures as a trade off between perpetual, low-cost capital (equity) and time-limited, costly (high yield) form of capital • In the current market it reflects both yield and dilution components of financing and can reduce both slightly • Terms of coupon and conversion: trade–off between expected equity return, liquidity of underlying shares, stability of cash flow (if any), and security of underlying assets • In many deals, the short-sellers/ arbs gets involved: • Sell short the underlying shares and buy/ go long on the convertible security (if the stock rises, they convert the bond to cover the short. If not, they continue to earn % coupon rate) • As with debt the current market conditions are making these products very expensive for issuers and the providers are very nervous

19. Alternative Sources: Gold-Linked Convertible Debs • Attractive especially to gold companies on the cusp of production • Similar application as High Yield Debt, Convertible Debentures: a hybrid debt – equity instrument • Debenture: secured and pays a coupon over its term • Conversion privilege: Common Shares or physical Gold • Upon Conversion or Maturity - transfers the leverage of increasing gold prices to the investor • With (higher) expected gold conversion, the actual coupon might be lower, helping companies manage the overall cost, particularly so in the pre-commercial production stage • Also the choice of conversion between shares or gold, puts less pressure on a balance sheet, therefore reducing the risk of bankruptcy if depressed commodity prices continue

20. Alternative Sources: Flow-Through Shares • Canadian exploration and certain development projects: can be funded by FT shares that “flow” the exploration tax deductions, normally claimed by corporations, “through” to investors • Funds must be spent on specific allowable tasks (drilling, surveying, etc) and are thus restricted • Flow through funds, and retail investors: main purchasers • Issuer must be a Canadian company, and • Projects must be in Canada • Additional provincial tax credits can be available • Not really a new alternative, since these have been available off and on for twenty years, but traditionally confined to exploration Co’s and strictly to the ones having Canadian properties/ assets • More mid–cap companies may need to explore this avenue for exploration financing • Deals typically done around year-end but also whenever a fund raises capital (which is becoming more difficult) • Pricing is market dependant; many companies expect premiums, given the tax advantage inherent • For exploration companies this is often the only method of financing • Many investors buy flow through for the tax advantage with no concern for the underlying issuer or its project • The shares often re-enter the market as soon as the investor can sell

21. Alternative Sources: Off-Take / Strategic Investors • Mostly done by European, Asian smelter companies/ or metal trading houses • The company must have a mining project with measurable production expected • Usually companies get an up-front cash payment, plus fixed price on the metals/minerals • Overseas strong financial partner providing both equity/ debt financing, combined with an off-take contract, represents pure relationship business (essentially important in bear markets): • Mitsubishi Materials Corp. purchased 25% equity interest in Copper Mountain Project (CUM: TSX) for $28.75m, arranged a $250m project loan, and contract to purchase all the copper con from the mine for 10 yrs • Korea Resource Corp (KORES) 30% acq. of Baja Mining Corp. (BAJ: TSX) for US$435m of project funding and 30% Off-Take Rights on Commercial Terms & 30% Completion Guarantee on Project Debt • Tata Steel Global Minerals purchased 19.9% of New Millennium Capital Corp. for $23.5 million and an option to acquire 80% equity interest in the DSO project, by paying 80% of cost, investing a further $300 million in exchange for 100% off take • Trafigura Beheer BV Amsterdam, off-take agreement with Farallon Resources Ltd. (FAN: TSX) • Chinalco, Jinchuan and Glencore AG are cashed up and currently making strategic investments in base metals producers

22. Alternative Sources: Royalty Sales • Company gives up a portion of future income or revenue stream– exchange for current financing • Usually completed just in front of production, but are not unusual on exploration projects • Often used in early “prospector” transactions, so very important to search for lingering or multiple royalties on title, since a royalty is most commonly recorded as a lien against a property • Typical royalty: Net Smelter Royalty (“NSR”) of 2% of the proceeds net of smelting and refining charges • Net Profits Interest (“NPI”) of 10% to 15% is paid after all expenses from operations are deducted • Generally royalties are considered non-dilutive, but equity investors are not keen on them, and often they do not raise that much money relative to the payout stream • Typical NSR deals would have been struck at anywhere between 1.25% to 2.00%, recent negotiations have started @ 2.00%, with a sliding-scale NSR, that could reach as much as 3.25%-3.50% • Royalty Companies are not very fond on NPIs, even though mining companies were willing/ ready to do deals in the range of 10%-15% NPI participation/ profit interest • Recent Transactions: • International Royalty Corp. (IRC: TSX) $2.85m acq. of additional gold royalties from Barrick/ Atna Resources • Franco-Nevada Corp. (TSX: FNV) $103.5 m acq. of 7.29% NSR on the Gold Quarry Royalty Property/ Nevada • International Royalty Corp. (IRC: TSX) $2.6m acq. of additional Skyline Coal Mine royalties located in Carbon and Emery Counties, Utah

23. Alternative Sources: Forward Sales • Company sells forward portion of future revenue stream, usually by-product at a pre-determined price, in exchange for current financing • An excellent way to monetize future minor revenue from a project • Can be made to downstream consumers (i.e. smelters), but more recently specific gold and silver companies have been purchasers of metal from would–be or existing producers: Silver Wheaton, and Gold Wheaton • Usually completed just in front of production, usually done on by product precious metals • Generally forward sales – considered non-dilutive; equity investors and analysts – satisfied with them, provided negotiated metal prices – not too deeply discounted • Typical gold or silver deals would involve a substantial pre-payment in exchange for most of metal revenue, with residual revenue stream • Recent examples include: • Silver Wheaton purchase of Mercator Minerals’ silver stream at Mineral Park US$42m • Gold Wheaton purchase of 50% of FNX’sgold, platinum and palladium: C$175m in cash, 350m Gold Wheaton shares & C$50m in Gold Wheaton warrants • Gold Wheaton purchase of 25% First Uranium’s 2.1m Ozs gold stream: C$125m in 2 tranches, C$75m due Feb 27/ ‘09 • Silver Wheaton purchase of 75% of Farallon’s silver stream from Campo: C$80m in several tranches

24. Alternative Sources: Mergers and Acquisitions • Many companies – shrunk to puny market caps, well below many institutional investors’ thresholds • Risk re-rating has resulted in funds drying up and a reluctance to finance juniors • The current order of least to most likely to get financed is: • Early stage exploration – pre drilling: pass the hat! • Pre – resource drilling: difficult and only superb results attracting attention (area where good news has caused sales on liquidity) • Resource drilling and pre – production: equity very difficult, pro-forma economics must be robust, must be in “safe” jurisdiction, will be financed by existing investors or “value investors”, debt very difficult, expensive and typical plant and equipment are being marked down extensively as collateral • Production: can get financed, especially to take advantage of “vulture opportunities”, but capital IS expensive (excluding dealer commissions!) • This is the time for companies to look at preparing for next recovery and metal cycle: • Create critical mass that investors will want to own • Those with cash and healthy balance sheets to look for opportunities • Those with weakened balance sheets to face reality

25. Alternative Sources: Mergers and Acquisitions • What the market wants to see, and how to position for that: • Cash on balance sheet: find a partner with a healthy balance sheet, and be extremely stingy with that cash, • Explorers with good projects should seek those trading below cash value • Limited debt on balance sheet: beware of leverage, unless its manageable • Stable cash flow: find a partner with robust operations, and a track record • Reduce operating risk: make multiple, quality, producing assets a priority • CRITICAL MASS – annual production and market caps • 100,000 + oz gold, 5 – 10 mm oz silver • 50,000 tonnes copper, zinc, 10,000 tonnes nickel • $50 million market caps as a minimum • Growth opportunities: find assets that have upside, not retreads • Growth opportunities: find quality exploration properties • Strong management: find management teams with proven success • Strong board: find board members with depth and success • Sell your assets (projects, or future revenue/income) • Sell your company – give your investors flexibility

26. Conclusions: • Funds are scarce and expensive • Budget with care – watch every non-essential expenditure, and at a last resort, wind down or temporarily close production/ operations • Consider the financing alternatives suggested, how does your Company’s profile fit? • Consider strategic partnerships – either with private pools of capital (NovaGold) or state backed enterprises (Chinalco) • Merge with or acquire cashed up shells or other cash rich(er) companies • It may be necessary to sell assets, or all of the business • Even with all these different options, some of the current juniors will be extinct by the time the bottom in equity and commodity markets is over