Lecture No.

Role of mining and processing of raw materials Diversification of multinational mining companies grass roots exploration to smaller resource companies Level of exploration declined in 1990s due to depressed metal prices and availability of funds

Significant growth in China and to some extent, India increase in metal prices Effect of global credit crisis in 2008 led to economic slowdown and metal prices decreased. Mining industry is capital intensive
Larger development cost
High level of mechanization

Available capital offset by reduced demand

Exploration successful exploration will result in dramatic increase in value of the company Definition quantity and quality of resource Feasibility studies economic viability of the resource Development if project is justified Extraction taking the ore from the orebody and separating from the waste rock

Processing mineral processing, beneficiation, extractive processes Refining further processing to produce saleable commodity

Volatility of share prices Exploration necessity, therefore higher risk Finite reserves definite volume, finite life
Probable Reserve Tonnage: 3 million Grade: 1.0% Cu Cu: 30,000MT Measure Resource Tonnage: 8 million Grade: 0.8% Cu Cu: 64,000 MT

Proven Reserve Tonnage: 2 million Grade: 1.2% Cu Cu: 24,000MT

Great effect on the value of the company Reliance on International Commodity prices Dependent on demand and economic conditions globally Effect of exchange rate most prices are quoted in US$

Exploration funds are needed to define and delineate reserves speculative. Economics of scale continuing decline of the quality of ore reserves move large volume of material Isolation remote location of mineral reserves result in high cost of infrastructure Power and water requirement in all mining operations

Ensure minimum impact on environment Environmental impact statement (EIS) Processing

Water consumption
Carbon dioxide emission SO2 emissions

Decommissioning

Surface owners Indigenous people Local government units

Lecture No. 2

Analysis of financial data Forecast the future financial performance of the company

Capital Costs Revenue Operating Costs Other costs Depreciation Taxation Cash flow

Developing access to the orebody Mining equipment Processing plant Support infrastructure power station/transmission, water source, airports, housing, roads, etc. Replacement of old equipment Working capital

Price of product x quantity sold Importance of forecasting of prices Exchange rate Production schedule Marketing costs plus insurance and transportation must be deducted

Day to day cost of production and processing Include:

Consumables chemicals & explosives Wages Transportation Power

Commonly quoted in cost/ton or ore mined or cost/ton ore milled Total cost usually in cost/production: i.e. US$/lb Cu produced

State royalties Leasing costs Interest or financing costs

Non-cash item Recovery of capital expenditure over the life of the project for tax purposes Defines the book value of capital or assets of the company

Varying rates Varies from country to country Royalties from the sale of mineral products is called excise tax

Cash needed to get the project into operation (negative) Cash from the project the owners get after deducting all costs (positive)

Lecture No. 3

Feasible practicable and possible In resource industry

Physical aspects i.e. reserves, location

Economic aspects cost, metal prices

Risk of failure vs. financial reward Initially, inferred from previous success back of the envelope valuation

Best mine configuration based on current knowledge of the orebody An estimate of likely operating and capital costs Initial metallurgical studies (bench tests) to determine likely mill design and likely recovery Availability of power, water, transport and infrastructure requirements

Environmental issues Product markets and future commodity price profile Preliminary financial model

Grade Tonnage Recovery Mining rate Open cut or underground mining Capital cost Operating cost

Studies Scoping Pre-feasibility Final/Bankable Feasibility & Engineering Design Construction phase Detailed engineering

Cost $100,000s $millions $10 millions

Time months months Year (s)

Accuracy Low Fair Good

Variable

Year(s)

Very Good

Summary and recommendations Mine location and description Development plan Plant product and capacity

Topographical maps Soil/geology reports

Geology Resource and reserves Geo-technical Mine plan Mine production schedule Mine equipment Mine services

Site plan Process flow sheets Energy balance Material balance Heat balance Major equipment Minor equipment General arrangement drawings Detailed structural drawings

Building and piping drawings Electrical drawings Management systems Equipment vendors

Environmental policy and plan Environmental risks Health and safety risks Environmental impact assessment Environmental permits issued Environmental monitoring plan Statutory requirements Closure plan

Project plan Project business systems Cash flow forecast Construction work plan Construction contract configuration Construction schedule Future work Labor rates Labor productivity Construction equipment

Major equipment bids Minor equipment bids Site preparation, earthwork Building foundations Equipment foundations Structural steel Cladding Architectural Mechanical

Staffing levels Labor rates Consumable/utility consumption Maintenance supplies Spares Power and water unit costs Fuel unit costs Supplies and reagents unit costs Transport and logistics

Working capital Sustaining/replacement capital Training Ramp up Insurances Escalation Foreign currency provisions Target accuracy

Determine the profits and cash flow for the equity holders Valuation methods are employed to determine financial viability Sensitivity and probability analysis consider issues such as project risk

Financing for capital expenditures Assets of the project are used as collateral, not the assets of the borrower

Cash flow should show that there are enough funds for payment of the interest Debt service coverage ratio Compare present value of forecast cash flow available for financing with the principal outstanding Life of the project debt service coverage ratio

Advantages:
Provides capital allowing the corporate to own multiple projects Relatively low cost finance Worldwide capital market

Disadvantages: Longer transaction time Higher fixed cost with restrictive covenants Extensive hedging to mitigate commodity price risk Increased level of due diligence and frequent monitoring of performance Default with the lender gaining ownership of the asset

Reserves Markets and commodity pricing Construction time and costs Operational costs Political, labor and environmental issues Ownership, tenure and tax

Debt service coverage ratio ability for the project to repay debt periodically
Cash flow available for debt service (CFADS) divided by Debt service, where debt service = principal plus debt If DSCR <1, project cant support debt Typical loan requires DSCR > 1.2