*connectedthinking

1. Mining IndustryRestructuring Issues*January 2009 PwC <footer> *connectedthinking

2. 1. Overview of the Current Situation

3. Insolvency & Restructuring Perspectives • The financial crisis has changed the way business is transacted • Stakeholders have become focused and are demanding more transparency • Understanding the “new normal” and alternatives in dealing with difficulties resulting from the financial crisis will be the key to survival • A GOOD CRISIS IS A TERRIBLE THING TO WASTE • There are significant opportunities to strengthen your company if your manage proactively through the downturn : <footer>

4. Mining Industry Issues Mining companies are currently experiencing: declining volumes and prices difficulty raising required debt due to tight credit markets, lack of investment money. Many companies are finding that they are not profitable when depressed commodity prices are coupled with their current cost structure. Concern over liquidity and debt covenant breaches. We expect ,as results are issued, there will be an increase in the number of companies seeking restructuring advice.

5. What we are seeing • Problems not limited to small companies • Problems range from: • Funding highly leveraged acquisitions with short term money • Short term financing maturing and new funding has dried up • Fwd contracts maturing and new contracts at significantly lower prices • Development Properties that can not fund completion • Cash flow is significantly reduced and cost of financing has gone way up, so only the best candidates will get the capital ie: diverse, low political risk, good properties <footer>

6. What we are seeing • Large well capitalized companies not spending money • Juniors are left to tough it out • Significant increases in the number of companies and Board of Directors Committees inquiring about insolvency protection • Half finished projects put on hold due to capital constraints • Companies spend more time dealing with creditors • Concern over pension deficiency funding issues • Companies putting cash negative mines on care and maintenance and preserving cash • Increased interest in investing through CCAA as a vehicle due to liability cleansing aspects <footer>

7. M & A Activity Driving Forces behind M&A activity: • Strengthen balance sheet to meet short and medium term operating cash requirements • Relieve stress on maturing debt obligations • Refocus on core operations • React to JV partner needs/demands • Opportunistic investment in quality exploration opportunities • Create “war chest” required to react quickly in the fast paced, competitive landscape • Maximize value for existing shareholders <footer>

8. Banks Are Going Back To Basics • Moving toward a more traditional banking model where banks hold loans as opposed to selling down positions or issuing credit defaults swaps • Greater emphasis on client diligence, monitoring, capital allocation and return on investment with increasing security requirements • Becoming more active in downgrading and managing problems • Senior debt pricing has risen 150 to 300+ basis points • Difficulty refinancing existing debt with new lenders • Tighter covenants upon renewal with waiver letters for breaches more difficult to obtain • Systematic deleveraging & more onerous total debt service with a return to straight line amortization <footer>

9. 2. Assessing the Situation <footer>

10. Covenants Defaults • Concerns re: covenant defaults • Cross defaults to other loan agreements • Loss of availability • Re-pricing of debt • Demands for repayment • What can be done • Develop a strategy for addressing potential defaults before they take place • Negotiate amendments and /or waivers • Forbearance Agreements • Look at other ways of raising the funding to address defaults • Bond exchange offers <footer>

11. Conserving shareholder value through asset preservation • Understand capital and project commitments • Only necessary capex • What are you committed to? • Financial assessment of postponement risk • Modeling of project postponement/delay on cash flows with comparisons to on-going project support • Quantify the shareholder value, if any, of postponing a project. • Assessment of non-financial impacts • Relationship impacts • Impact on communities • Market impact • Develop options for conservatory measures <footer>

12. Counterparty risk - know your counterparts • Review your customer, supplier, venture contracts • Understand your risk of contract default both financial and legal - what are you responsible for and what are the potential costs? • What is the credit risk of your suppliers. If your suppliers don’t weather the storm what is the impact to you? <footer>

13. Are there non Core Assets to sell ? • Sell non core assets to raise Capital • Less profitable assets ,with minimum impact on cash flow • May require stakeholder consent <footer>

14. 3. Restructuring Options <footer>

15. Option for dealing with solvency issues • Manage events of default (waivers, forbearance) • Pre-emptive Transactions (financing, asset sales, debt exchanges etc) • Informal Restructuring • File a formal Proposal (BIA or CCAA) <footer>

16. What is the best vehicle for a restructuring? • Formal vs. Informal (Court vs. out of Court) • Number of creditors to be addressed • Secured creditors, cross guarantees • Contracts and commitments (insolvency clauses) • Events of default or covenant breaches • Concern for Officers and Directors liabilities • Costs (monitor ,professionals, legal fees) • When does a formal insolvency filing make sense? • Are there contracts to be shed? • Do creditors need to be stayed ? • Are there potential supply interruptions? • Is DIP financing required ? • Does the Company need equity? • Two formal options BIA Proposal or filing under Companies Creditors Arrangement Act (CCAA) <footer>

17. BIA proposal A statutory process with strict timeframes, rules and guidelines Automatic statutory stay of proceedings without a court application Risk of a deemed bankruptcy in the event proposal is not accepted by creditors, this risk should be avoided where company has potential to be a going concern CCAA filing Timeframes are not as strict More discretionary and judicially driven - Most mining companies are big enough to qualify for CCAA Management remains in control - Allows the company to stay out of bankruptcy and potentially utilize tax losses Filing under the BIA vs. CCAA Conclusion: A filing under the CCAA is the preferable approach if there are significant tax losses and/or the potential for the company to operate as a going concern. <footer>

18. CCAA Plan Options • Debt to Equity conversions • Creditor Compromises and deleveraging • Transfer of ownership • Asset Sales • Liquidation • Creditor initiated CCAA when debtor not onside with a filing • US Recognition Orders for Cross Border <footer>

19. CCAA Benefits • Order can provide a charge for : • Provide charge for Director and Officer Liabilities ,supplier claims, professionals • Debtor in Possession (DIP) Financing • Opportunity for unsecured creditors to become secured through DIP • Flexibility to deal with local trade debt-local community impact • Address long term equipment contracts, unsecured debt • Creditor compromises • Secured debt is easier to deal with when it is broadly held <footer>

20. CCAA filing – The Process • Qualifying • Canadian incorporated or foreign company with assets or carrying on business in Canada • Debtor is insolvent • on a cash flow or a balance sheet test • Debt > $5M • Filing • Through a superior Provincial court • Can be initiated by a debtor or creditor • Recognition of foreign insolvency filings • Impact • Stay of proceedings • against secured and • unsecured creditors • Court appointed Monitor to supervise restructuring on behalf of creditors <footer>

21. Voting • 50% +1 of the total # of creditors by class • 66 2/3% of total value of claims by class • Options • Conversion of debt to equity • Creditor claim compromises • Extended terms on debt • Priority Charges • Certain D&O liabilities • DIP financing • Employee Claims • Suppliers • Prepackaged Plans increase chances of success • -Less time in a filing the better <footer>

22. Receivership – an alternative for secured creditors • Similar to bankruptcy, under a receivership scenario, the company is no longer considered to be a going concern • Receivership is initiated by a secured creditor • Once in receivership, the officers and directors are barred from exercising any control over the company’s assets • Control is assumed by the Receiver who can operate the business for the purpose of selling off the assets and paying down amounts owing to creditors • This is generally the very last resort when it appears highly unlikely that there is potential for the business to operate as a going concern • Environmental and Labour concerns with operations <footer>

23. 4.Distress M&A <footer>

24. Turn Another’s Pain Into Your Gain • Today’s environment will provide many opportunities for well capitalized and prepared acquirers. • Opportunities for investing • Assets being sold-off in distressed situations • Ability to de-lever the balance sheet through liability cleansing in the plan of arrangement • Assets sold -title is typically vested free and clear to acquirer • Ability to preserve tax losses • Understand the drivers of distressed M&A • Timing – often compressed, making preparation critical • Stakeholders – lenders, asset lenders, suppliers, unions, equity holders • Structure and process – asset vs. share and formal vs. informal proceedings : <footer>

25. Transactions Structure - Share vs. Asset Advantages • Carve out of undesirable/desirable assets • Purchaser is less exposed to contingent or undisclosed liabilities • Ability to step-up asset values • Less warranties and indemnities required Disadvantages • Need formal assignment of third party contracts • Renegotiation of banking and credit arrangements required Advantages • Use of accumulated tax losses • Existing 3rd party contracts transferred without formal assignment • Greater flexibility in the apportionment of the purchase price for “fair value” accounting Disadvantages • All liabilities are transferred to buyer • Additional reps and warrantees • More extensive due diligence • Increased risk to buyer could effect financing options Asset Share : <footer>

26. END <footer>