Current Trends in Mining Finance BASE , PRECIOUS AND INDUSTRIAL MINERALS: PROPERTY AND PROJECT VALUATIONS

1. Current Trends in Mining Finance BASE, PRECIOUS AND INDUSTRIAL MINERALS: PROPERTY AND PROJECT VALUATIONS John B. Gustavson Certified Minerals Appraiser #1992-1 Boulder, Colorado

2. About the Panelist: • John B. Gustavson, MS Geology, MS Chem. Eng. • Forty years in minerals, after … • Early days in aerospace industry … • Turning “rocket science” into an exploration tool … • Focusing first on geo-science … • Then adding engineering and economics … • Rounding off with appraisal of mineral assets • Competence in market appraisal since 1980’s • Certified Minerals Appraiser

4. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

5. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

6. A mining project is the business and technical activities focused on extracting the deposit Mineral Property v. MINING PROJECT A mineral property is the underlying asset in the ground

7. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

8. Stages of highest & best Use “The highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future is to be considered”

9. Stages of highest & best Use • Land position under control, but with unknown geological potential • Land position under control and with favorable exploration environment • Anomalies noted by geophysical, geochemical surveys or grab sampling • Minerals identified with drilling intersections • Delineated prospect at Scoping phase • Deposit with positive Pre-Feasibility, but no Preliminary Economic Assessment, yet

10. Stages of highest & best Use • Positive Pre-Feasibility and Preliminary Economic Assessment with Mine Plan • Undeveloped deposit with full Feasibility and all permits • Financed and engineered mine at time of construction Go-Ahead • New producing mine • Producing mine with substantial history of production

11. BASIC APPROACHES

13. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

14. Exploration property valuation Mostly equity financing (funded by private placement & company cash). Value is estimated by: • Comparable sales analyses • Cost prudently expended • Reality check by Discounted Cash Flow

15. Comparable Sales transactions must meet these Market Value criteria: Cash or cash-equivalent consideration Willing seller and buyer Knowledgeable seller and buyer Arm’s-length transaction Exposure to market forces Comparable sales analyses

16. Comparable sales analyses Copper example

17. Comparable sales analyses Copper example

18. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

19. DEVELOPMENT property valuation • Most important financing stage, so all sources are needed. • Examples: equity IPO’s, secondary issues, commercial and export bank lending, multilateral, project and royalty finance, other. • All need estimate of value of Property. • Establish model and run DCF • Reality check from Comparable Sales

20. Q * Pr – C SUM[ NPV = ] (1 + r)n MARKET VALUE by dcf Where “r” is the discount rate and “n” is the years to have to wait for the revenue.

21. DEVELOPMENT property valuation

22. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

23. DCF based on past and current cash flow, Sensitivity analyses and Sales comparison as reality check Operating property valuation • Occasional financing needed for expansion, major mine overhaul, etc. • Examples of sources: corporate debt, balance sheet lending, trade finance. • Most need estimate of value of Property.

24. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

25. Battery limits for property valuation Definition: A mineral property includes the mineral asset and all workings up to the point of a marketable ore or commodity. ???

26. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

27. AIMA SME NI43-101 SAMVAL CRIRSCO JORC VALMIN IVSC IMVAL Concept courtesy: Ron Harrell

28. RESERVE AND RESOURCE STANDARDS

29. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

30. International Harmonization • IVS (INTERNATIONAL VALUATIONS STANDARDS) • IVSC undertook preparation and circulation of a Discussion Paper in 2012. Many comments were received from industry (incl. mining and accounting sectors). Now being analyzed. • Key discussion items included: • What methods are used for allocating value to different assets contributing to the cash flow? How is double counting avoided? • Extent to which intangibles are reflected in valuations in extractive industries. What types of intangible asset are typically identified?

31. International Harmonization • IMVAL (INTERNATIONAL MINERAL ASSET VALUATION COMMITTEE) • Prepared draft template in January 2013 of an International Mineral Asset Valuation Reporting Template (IRT) to serve as future guidance. • Draft was based on: • VALMIN Code (Australasia), • SAMVAL Code (South Africa), • RICS Red Book (UK / Western Europe), • CIMVAL (Canada), and • SME Guide (USA) . • It also draws from, and references to, the International Valuations Standards (IVS) and the International Financial Reporting Standards, where appropriate. • Next step: circulation and review of industry comments.

32. PROPERTY AND PROJECT VALUATIONS • Introduction, Mineral Property= The underlying asset in the ground, • Basics • Exploration property valuation • Development property valuation, (most important financing stage) • Operating property valuation • Benchmarks and Trends in Marketplace • “Battery limits” for property • Reserve and resource standards • Recent Changes • International Harmonization • Conclusions

33. conclusions

34. Thank You! John B. Gustavson Mineral Appraiser, LLC Boulder, Colorado 1-303-818-5992 – johngustavson1@aol.com

35. SUGGESTED questions How large percentage adjustments can an appraiser make for various parameters when using the sales comparison approach? How do you handle inferred resources in valuation? What is the American Institute of Minerals Appraisers and who can get certified?

36. AMERICAN INSTITUTE OF MINERALS APPRAISERS (A Colorado Nonprofit Corporation) 5757 Central Avenue, Suite D, Boulder, Colorado 80301 Phone: 1-303-443-2209 Fax: 1-303-443-3156 Web site: www.mineralsappraisers.org