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Understanding and Valuating Exploration Companies 24 May 2007 Shane Hunter

Understanding and Valuating Exploration Companies 24 May 2007 Shane Hunter. Agenda. The mining value chain – where exploration fits in. What information do we get? What can we value as we move along the value chain? Valuation methods General valuation issues Summary.

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Understanding and Valuating Exploration Companies 24 May 2007 Shane Hunter

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  1. Understanding and Valuating Exploration Companies24 May 2007Shane Hunter

  2. Agenda • The mining value chain – where exploration fits in. • What information do we get? • What can we value as we move along the value chain? • Valuation methods • General valuation issues • Summary

  3. The mining value chain Source: www.bullion.org.za

  4. Primary Exploration • Geochemical • Geophysical • Trenching • Drilling • = Metal values • Secondary Exploration • Drilling • Geological modeling • Metallurgical testing • Basic mining methods • (Scoping study) • = Mineral Resource • Business Planning • (Feasibility study) • In-fill drilling • Geological modeling • Metallurgical testing • Mine planning • = Mineral Reserve • Mine Construction • Engineering design • Build the plant • Build the mine • Mine planning details Operate the mine The (simplified) Mining Value Chain • Target Generation • Planning • Historical data • Geophysical • Geology • = A target area

  5. AngloPlats JV AngloPlats JV AngloPlats JV Source: Wesizwe Target Generation Location, location, location Wesizwe Sun City Wesizwe Wesizwe

  6. Source: Pan African Resources Target Generation Location, location, location

  7. Target Generation Source: Pan African Resources

  8. Primary Exploration Source: Pan African Resources

  9. Source: Deep Yellow Primary Exploration

  10. Primary Exploration

  11. Primary Exploration Source: St. Jude Resources

  12. Primary Exploration “We expect a SAMREC compliant Resource Statement to be released by . . . . .” Source: St. Jude Resources

  13. Primary Exploration But . . . . They only achieved 1!

  14. Width Strike Dip Primary Exploration Volume of the ore-body . . . • The ore-body is open along strike and at depth . . . • The ore-body is not closed off along strike or at depth . . .

  15. Source: Adamus Resources Secondary Exploration

  16. Secondary Exploration Source: Adamus Resources

  17. Secondary Exploration Source: Pan African Resources

  18. Business Planning Mine Plan

  19. Business Planning Reserve Statement Source: SXR UraniumOne Plant recovery factor ~ 80 to 95%

  20. Primary Exploration • Geochemical • Geophysical • Trenching • Drilling • = Metal values • Secondary Exploration • In-fill drilling • Geological modeling • Metallurgical recovery • Basic mining methods • = Mineral Resource • Business Planning • In-fill drilling • Geological modeling • Metallurgical testing • Mine planning • = Mineral Reserve • Mine Construction • Engineering design • Build the plant • Build the mine • Mine planning details Operate the mine Value along the Value Chain • Target Generation • Planning • Historical data • Geophysical • Geology • = A target area Speculation Speculation Valuation 1. Valuation 2.

  21. Valuation 1. - Enterprise value per oz in the ground Enterprise value = Market cap + debt - cash

  22. Valuation 1. - Enterprise value per oz in the ground EV/Measured & Indicated resources

  23. Value 1. Enterprise value per M&I oz in the ground - Peer groups

  24. Value 1. Enterprise value per oz in the ground ??? • This method DOES NOT directly consider; • Grade of the ore-body • The cost of mining (shallow, deep, open pit, u/g?) • The capital cost needed to build the mine • When will mining take place, i.e. the time value of money • Any royalty payable • Some companies will various deposits/resources • The EV/oz method also assumes; • All the resource ozs will be mined (or are worth something)

  25. Source: First Uranium Valuation 1. Underground resource Underground resource: ~ 6 million ozs

  26. 20 year life . . . Use site specific factors or industry standards . . . Underground resource: ~ 6 million ozs . . . .

  27. Valuation 1. Shallow Resource Shallow resource: ~ 1.5 million ozs

  28. 10 year life . . . Use site specific factors or industry standards . . . Shallow resource: ~ 1.5 million ozs

  29. Valuation 2. (Reserve) - NPV Model based on Feasibility Studies Mine ABC -1 2 3 DCF Value: $, Rands

  30. Value 2. NPV Model based on Feasibility Studies

  31. Source: First Uranium Inferred Resources - Physical location Indicated resource inferred resource

  32. Normal reef Fault loss fault Reef area reef reef Inferred Resources - Physical location Platinum example . . . Source: Wesizwe

  33. Inferred Resources - Physical location Lease area Target areas Greenstone type deposit or open pit

  34. Physical location of resources Lease area Drilling takes place

  35. Inferred Resources - Physical location Inferred Inferred Area 2 no value Area 3 Lease area no value Area 1 Measured Indicated Inferred some value As at 31 Dec. 2006

  36. Inferred Resources - Physical location Inferred Inferred Area 2 no value Area 3 Lease area 70% ownership no value Area 1 Measured Indicated Inferred some value As at 31 Dec. 2006

  37. Inferred Inferred Area 2 value? Area 3 Lease area Indicated no value Area 1 Measured Indicated Inferred some value As at 31 March. 2007 Inferred Resources - Physical location Valuations will change as more information is released to the market . . .

  38. Exploration planning 2007: Exploration expenditure (R millions) (10,000 metres)

  39. Company valuation • The technical value + . . . • Supply and demand of the shares • Commodity price outlook • Market issues • government policies/legislation • the economy

  40. Important Value Issues • What is the out-look on the commodity price? • Conversion of prospecting to mining rights, • Is the company in a JV with a major? • The major will supply the capital in return for ownership in the operation • How risky is the location (country) of the project • Who are the management team • Potential mergers, acquisitions

  41. Inferred • Target Generation • Planning • Historical data • Remote sensing • Geological • = A target area • Primary Exploration • Geochemical • Geophysical • Trenching • Drilling • = Metal values • Secondary Exploration • In-fill drilling • Geological modeling • Metallurgical testing • Basic mining methods • (Pre-feasibility study) • = Mineral Resource Inferred Area 2 value? Area 3 Lease area Indicated no value Operate the mine Area 1 Measured Indicated Inferred • Business Planning • (Feasibility study) • In-fill drilling • Geological modeling • Metallurgical testing • Mine planning • = Mineral Reserve • Mine Construction • Engineering design • Build the plant • Build the mine • Mine planning details some value As at 31 March. 2007 Date: February 2007 Summary

  42. Questions?

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