Current Trends in Mining Finance: Strategic and Financial Challenges

Roy Hinkamper, KPMG LLP

April 2013

2© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Asset Life Cycle

Mining Asset Life CycleLe

vel o

f act

ivity

Time

Evaluate country risks and market opportunities

Search for commercially exploitable resources

Removal of overburden and waste, and plant commissioning

Permit and licence applications

Commercial exploitation begins

Expansion of mine and plant

Commercial exploitation ends

Closure of mine and plant

Ongoing rehabilitation

Bankable feasibility study (BFS)

Prospecting rights application

Pre-feasibility study

Competent persons report

Preliminary Economic Assessment (PEA) Construction of

infrastructure and plant

Note: (1) Estimated duration of stage in the mining asset life cycle(2) Reflects key activities only at each stage of the mining asset life cycle

Design and implement market strategy

Expansion Exploration Evaluation Development Production Closure

1-2 years1 2-10 years1 3-6 years1 1-3 years1 10-50 years1 1-10 years1

3© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Assetlife cycle

Expansion1-2 years1

Exploration2-10 years1

Evaluation3-6 years1

Development1-3 years1

Production10-50 years1

Closure1-10 years1

Market entry

Transactions

Financing and M&A

Tax structuring

Due diligence

Integration

Project development

Feasibilities

Financing

Tax structuring

Project execution

Your asset life cycle – How KPMG can help

Portfolio management

Strategy development

Scenario planning

People and change

Tax strategy and policy

Projects

Operating model development

Supply chain transformation

Cost and tax optimisation

Business intelligence

Business transformation

Operational excellence

Statutory audit

Internal assurance

Enterprise risk management

Tax compliance

Risk & compliance

Strategic & scenario planning

Community investment

Materials stewardship

Energy, water and carbon

Mine rehabilitation

Reporting and tax transparency

Business resilience

Forensic investigations

Note: (1) Estimated duration of stage in the mining asset life cycle

Strategy Growth Performance Compliance Sustainability

Mining – what we do

4© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Mining - what are the challenges?

Risks

• Lower output, lower returns.

• Continuous escalation of capital costs.

• Dependence on exploration.

Mitigation

• Exploration for new, higher grade ore bodies

• Process efficiency remediation to reduce costs.

• Introduction of new technology to streamline extraction and reduce costs.

Current State Issues

• Decreasing grade of ore bodies.

• Higher volume of extraction and throughput to achieve output targets.

• Increased energy costs.

• Larger capacity infrastructure.

• Higher capital investment.

• Increased operating costs associated with higher levels of mining processing activity.

• Regulatory/Social Issues

Mining companies face formidable challenges in maintaining profitability in an environment characterised by declining ore grades and flat commodity prices

Consequences

Continual need for improved productivity to

maintain profit levels

Decreasing net returns

Pressure to open new mine sites.

Dependency on capital funding

5© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Mining - Opportunity Areas

Ore TransportDrill & BlastCrushing/ Grinding

Processing Extraction

Mine DevelopmentExploration Operation Closure

Potential Opportunity Areas

Process Optimisation

Mining processes are often poorly understood and have a great deal of interdependencies between different stages of the process. De-bottlenecking, lean techniques, process modeling and controls are significant value levers

Procurement Procurement in the mining industry can be a source of significant commercial and strategic value, especially in the current capacity constrained environment where suppliers are often in powerful bargaining positions. In addition to this a historic focus on production at the expense of costs can result in inflated procurement costs

Asset Management

Improved maintenance practices and planning activities can improve equipment availability and utilization through the use of advanced analytics to support predictive maintenance

Production Planning

Holistic scheduling of mine production and clear communication and co-ordination between value chain steps can result in improved overall system performance

Sustainable Development

The mining industry is facing increasing pressures on the use of land, and water and constraints on its generation of waste, a thorough understanding of these issues and appropriate strategies to address them can be a source of significant competitive advantage

Thank you

Roy Hinkamper

(314) 244 4061

rhinkamper@kpmg.com

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© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.