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GLOSSARY OFMINING FINANCE TERMS

Glossary of Mining and Finance Terms – an ebook by www.minesandmoney.com

International Acronyms

Accounting &Financial Terms

Mining FinanceTerms

Mining Terms

Glossary of Mining and Finance Terms – an ebook by www.minesandmoney.com2

Contents

3 International Acronyms

4 Common Accounting Terms

5-6 Less Common Accounting & Financial Terms

7-8 Other Mining Finance Terms

9-10 Common Mining Terms


International AcronymsAFR Africa region AIM Alternative investment market in London

ASM Artisanal and Small-Scale Mining ASX Australian Stock ExchangeBIS Bank for International Settlements

BRIC Brazil, Russia, India, China CASM Communities and Small-Scale Mining

DFID Department for International Development (UK) EAP East Asia and Pacifi c region

EBRD European Bank for Reconstruction & DevelopmentECA Europe and Central Asia region

EE Energy Effi ciency EI Extractive Industries

EIA US Energy Information Administration FDI Foreign Direct Investment FY Fiscal or Financial Year

GHG Greenhouse Gas GRI Global Reporting Initiative

HGA Host Government AgreementHIPC Heavily Indebted Poor Country IBRD International Bank for Reconstruction & Development

ICMM International Council on Mining and MetalsIDA International Development AssociationIEA International Energy AgencyIFC International Finance CorporationIFI International Financial Institution

IFRIC International Financial Reporting Interpretation CommIFRS International Financing Reporting StandardsIGA Inter-government AgreementIIED International Institute for Environment & DevelopmentIMF International Monetary FundJSE Johannesburg Stock Exchange in South Africa

LICUS Low-Income Countries under StressLME London Metal Exchange

MDB Multilateral Development BankMENA The Middle East and North Africa regionMIGA Multilateral Investment Guarantee Agency

MMSD Mining Minerals & Sustainable Development (IIED)NGO Nongovernmental Organization

OECD Organization for Economic Co-operation&DevelopmentRE Renewable Energy ex hydro capacity more than 10MW

SEGOM The World Bank’s Oil, Gas and Mining Policy DivisionSME Small and Medium EnterprisesSSE Shanghai Stock Exchange

TNC Transnational CorporationTSX Toronto Stock ExchangeUJV Unincorporated Joint VentureUN United Nations

UNEP United Nations Energy ProgramWBG World Bank Group


Common Accounting TermsEBITEarnings Before Interest and Tax – most common measure of profi t, revenue minus costs but excluding the cost of paying interest on borrowings or paying tax. Interest & tax are excluded to show the net profi t achieved before taking into consideration taxes and fi nance costs. We exclude interest & tax as these costs are not directly related to how profi table the operation is. They are more like costs of doing business rather than directly telling us how well we are going.

EBITDAEarnings Before Interest, Tax, Depreciation and Amortisation – another measure of profi t. Again revenues minus costs excluding costs of interest and tax but this time we also exclude depreciation and amortisation costs. Just a diff erent measure for profi ts taking out additional measures that aren’t directly related to operational performance (more related to the cost of capital than how well the business did).

DEPRECIATIONDepreciation is how much the assets of the business are used up over time. For example your car will be used up over time – if you were a business, the amount by which it is used up each year could be claimed as a depreciation cost. It is recognised as a cost even though no cash is involved. It is essentially a cost item which recognises how much value the company’s assets have lost each period.

AMORTISATIONSame as depreciation except it applies to intangible assets whereas depreciation applies to physical capital assets.Assets a company puts a value on, even though there is nothing that physically exists. This includes things like the value of goodwill, brand, and capitalised R&D.

CAPITAL COSTS VS OPERATING COSTThe real diff erence is that capital costs are treated diff erently to operating costs in accounting – capital costs are allocated as expenses over a period of years while operating costs are accounted for in the same period in which they occur.

FIXED COSTS VS VARIABLE COSTSIn the context of the mining operation fi xed costs are those that don’t change from one period to the next regardless of production levels. Labour costs are fairly fi xed in any month no matter how many tonnes are produced. Labour is usually one of the mine’s largest fi xed costs. Other fi xed costs might include rental and general overheads. Variable costs vary depending on the level of production such as explosives, fuel, ground support consumables, drilling consumables, tyres, and royalties.

COST CURVEA cost curve for a specifi c industry is basically a graph of the production costs for all the mines or companies in that industry. This curve allows the mine to see how its production costs relate to its competitors. Cost curves are important in mining where most producers receive a similar prices for the product. Companies will often refer to the quartile of the cost curve in which they sit. You want to be in the lowest quartile (25%) of the industry.

ECONOMIES OF SCALEThe term economies of scale refers to the fact that we commonly fi nd the cost of creating a single item reduces as we make more of those items. And likewise, the cost per item for bigger businesses is generally lower than that for small businesses. For example, if my mine produces 1,000 tonnes of coal, it might work out that it costs me $10,000 per tonne to mine it. However, if I produce 10 million tonnes, it might only work out to cost $100 per tonne.

This principle is very important in the mining industry, especially in commodities like iron ore or coal – the more the mine produces, in general the less it costs to produce each tonne. Economies of scale are related to our discussion above about fi xed and variable costs. The more items we make, the more items we have to divide the fi xed costs over.

As mines tend to have quite high fi xed costs (especially labour and equipment), the more tonnes we can divide these fi xed costs over the better. Other things also contribute to economies of scale, including more purchasing power to get better deals from suppliers when you are bigger, the ability to invest more capital in return for lower operating costs, and improved logistics leading to lower transport costs.


Less Common Accounting & Financial TermsAdjusted EBITDAEBITDA adjusted to exclude impairment charges. A measure that is close to the underlying cash earnings of a company before servicing its capital base

Average number of employees: The monthly average number of production and non-production employees and contractors employed during the year, where contractors are defi ned as individuals who have entered into a fi xed-term contract of employment with a group company or subsidiary. Employee numbers of joint ventures represents a group’s attributable share.

Book Net WorthBook Net Worth is the net worth of the company as presented on the balance sheet without deductions for intangible assets.

Cash for Debt ServiceNet Income (after taxes and extraordinary items, but before dividends) plus the sum of non-cash charges and interest expense less the sum of capital expenditures and changes in working capital accounts.

Cash gross marginCash gross profi t (loss) divided by metal sales including realised non-hedge derivatives.

Cash gross profit (loss)Gross profi t (loss) plus amortisation of tangible and intangible assets less non-cash revenues. Creditor days Accounts payable / Operating Expenses * 365

Current ratio: Current assets / Current liabilitiesDebt Service Coverage Ratio is the ratio of Cash for Debt Service divided by the sum of scheduled principal payments, interest payments, mandatory capital lease obligations and any permitted dividends.

EBITDA margin EBITDA / Revenue

Equity Shareholders’ equity adjusted for other comprehensive income, actuarial gain (loss) and deferred taxation. Where average equity is referred to, this is calculated by averaging the fi gures at the beginning and the end of the fi nancial year.

Free cash flowOperating cash fl ows less investment in property,plant and equipment

FYFiscal or Financial Year

Gearing ratioNet borrowings / Equity

Gross margin %Gross profi t (loss) as a percentage of income including realised non-hedge derivatives.

Interest Coverage Ratio The ratio of Cash for Debt Service to all cash interest expense.

Interest coverEBITDA divided by fi nance costs and unwinding of obligations.

Monetary assetAn asset which will be settled in a fi xed or easily determinable amount of money

Monte Carlo SimulationA Monte Carlo Simulation assigns random variables to each input parameter in a cash fl ow model within a probability range and then repeatedly runs the model to achieve a probability distribution of the outputs.

Net assetsTotal Assets less total liabilities

Net borrowingsBorrowings less cash

Net profit marginNet profi t / Revenue

Net asset value per shareTotal equity per the balance sheet divided by the shares in issue. Normalised EBITDA means the average EBITDA for the last three years

Net capital employedEquity as defi ned above plus minority interests and interest-bearing borrowings, less cash and cash equivalents and other cash investments. Where average net capital employed is referred to, this is the average of the fi gures at the beginning and the end of the fi nancial year.

Net debtBorrowings less cash and cash equivalents and other cash investments.

Net operating assetsTangible assets, current and non-current portion of inventories, current and non-current trade and other receivables, less current and non-current trade and other payables and deferred income.


Less Common Accounting & Financial Terms (continued)

Net tangible asset value per shareTotal equity per balance sheet less intangible assets, divided by the number of ordinary shares in issue.

Price received ($/oz and $/t)Attributable income including realised non-hedge derivatives divided by attributable ounces/kilograms/tonnes sold.

Quick ratio(Current assets less Inventory) / Current liabilities

Realised non-hedge derivativesRepresents the current year income statement eff ect of non-hedge derivatives that were settled during the current year.

Return on capital employed (‘ROCE’) Net profi t/PP&E plus net assets

Return on equity (‘ROE’)Net profi t/Equity

Return on net capitalAdjusted headline earnings before fi nance costs and unwinding of decommissioning and restoration obligations expressed as a percentage of average net capital employed, adjusted for the timing of acquisitions and disposals.

Senior Debt All of the company’s debt that has the highest payment priority including payment obligations of capital leases that may be considered as principal payments.

Senior Debt to Book Net Worth The ratio of Senior Debt to Book Net Worth.

Senior Interest Expense All cash interest expense relating to Senior Debt, including the payment obligations of capital leases which may be considered as interest payments.

Senior Interest Coverage Ratio The ratio of EBITDA to Senior Interest Expense.

Total Capitalisation Total Debt plus Book Net Worth.

Total cash costsTotal cash costs include site costs for all mining, processing and administration, reduced by contributions from by products and are inclusive of royalties and production taxes but excluding amortisation, corporate administration, retrenchment, capital and exploration costs.

Total DebtAll of the company’s debt which requires interest payments PIK or principal payments, including preferred stock which is convertible into debt at the holder’s option and the principal portion of capitalised leases. This defi nition also includes holding company debt that requires operating company dividends for the holding company debt to be serviced, but excludes any equity or quasi-equity which is provided by way of deep discount bonds or shareholder loans, where such instruments are non-interest bearing (on a cash basis), cannot be redeemed before the senior debt and are both legally and structurally subordinated to the senior debt.

Total production costsTotal cash costs plus amortisation, retrenchment, rehabilitation and other non-cash costs. Corporate administration and exploration costs are excluded.

Weighted average number of ordinary sharesThe number of ordinary shares in issue at the beginning of the year, increased by shares issued during the year, weighted on a time basis for the period during which they have participated in the income of the group, and increased by share options that is virtually certain to be exercised


Other Mining Finance TermsDiscontinued operationsThe component of an entity that, pursuant to a single plan, has been disposed of or abandoned or is classifi ed as held-for-sale until conditions precedent to the sale have been fulfi lled.

Effective tax rateCurrent and deferred taxation as a percentage of profi t before taxation.

ETFExchange traded fund.

GDP Gross domestic product.

IPOThe Initial Public Off ering of shares in a specifi c company.

JuniorA mining company registered on a stock exchange (e.g. TSE, AIM, ASE, AltX) seeking venture (or ‘start up’) capital, usually for exploration purposes.

LBO(Leveraged Buy Out) Where a company raises debt to acquire another

LLC LimitedLiability Company

LME LondonMetal Exchange, the world’s premier forum for daily trading in the prices of aluminium, copper, nickel, zinc, other nonferrous metals and (from 2008) iron ore.

LP/LLP Limited(Liability) Partnership.

MBO (Management Buyout)Where managers acquire a company for which they work.

M&AsMergers and Acquisitions.

Market Cap/Market CapitalisationThe value of a company shares, consolidated between their price(s) on one or more stock exchanges at any given moment.

Ordinary sharesThose which normally carry voting rights (see also Shares and Preference shares). Market capitalisation: The market value of the equity of a company, calculated as the share price multiplied by the number of shares outstanding.

Preference sharesGrant the owner dividends, even when ordinary shareholders may not receive them, as well as the fi rst pick of proceeds when a company is liquidated. They normally do not carry voting rights. Price-to-earnings ratio (‘PE ratio’): Market value/earnings per share.

Private EquityShare holdings not listed on a registered stock exchange; see also Venture Capital.

Related partyParties are considered related if one party has the ability to control the other party or exercise signifi cant infl uence over the other party in making fi nancial and operating decisions.

Revolving Credit FacilityA loan repaid in a lump sum at the end of its tenor

RoyaltiesPayments made for the use of a metal or mineral resource delivered to the “owner” of the resource (usually a government) either at gross or net % value of the asset as determined by the owner.

SEStock Exchange

Senior debt/debentureA debt which has priority in any conversion to equity.

SharesAlso called equities or stock - that portion of a company’s capital registered either in the owner’s name or in an account held by a bank or stock broker (known as a bearer share).

Share optionA privilege sold by one party to another that gives the buyer the right but not the obligation to buy (call) or sell(put) a stock at an agreed strike price within a certain period or on a specifi c date.

Share warrant A paid-up share which can be transferred by its holder to another party without any need for a registered transfer (UK).

SPVs/SPEsSpecial Purpose Vehicles or Entities provide a means of isolating risks taken by a bank or other company.

StockOrdinary or common shares held in a company.


Other Mining Finance Terms (continued)

SWF Sovereign Wealth FundAn investment agency of a state government in onshore and off shore companies.

UnderwritingThe process by which an issue of equity, debt, bonds, is aff orded credit worthiness.

Venture CapitalStart-up funding provided for new companies (in the case of mining, usually junior exploration companies) and generally classifi ed as part of private equity.

Top 3 BHP Billiton, Rio Tinto and Vale

Top 4 BHP Billiton, Rio Tinto, Vale, and China Shenhua

Top 5 Diversifi eds BHP Billiton, Rio Tinto, Vale, Anglo and Xstrata

Top 10 BHP Billiton, Rio Tinto, Vale, China Shenhua, Anglo American, Barrick Gold, Xstrata, Glencore, Goldcorp and Coal India

Top xx xx of the world’s largest mining companies by market capitalisation


Common Mining TermsBy-productsAny products that emanate from the core process of producing a primary metal including gold, silver, uranium and sulphuric acid.

CofW Contract of Work setting out the Host Government’s fi scal terms for mine development over the life of mine (LOM).

ComminutionComminution is the crushing and grinding of ore to make a metal available for treatment. (See also “Milling”).

Contained metalThe total metal content (tons multiplied by grade) of the material being described.

Cut-off GradeThe minimum grade at which a unit of ore will be mined to achieve the desired economic outcome.

DepletionThe decrease in quantity of ore in a deposit or property resulting from extraction or production.

DevelopmentThe process of accessing an ore body through shafts and/or tunnelling in underground mining operations.

DmtDry metric tonne.

Electro-winningA process of recovering metal from solution by means of electrolytic chemical reaction into a form that can be smelted easily.

EPCMA style of project development contract where the contractor is responsible for Engineering, Procurement, Construction and Management.

GradeThe quantity of metal contained within a unit weight of metal bearing material generally expressed in ounces per short ton of ore for gold (oz/t), or grams per metric tonne (g/t) and as a % for most other metals.

Indicated Mineral ResourceThat part of a Mineral Resource for which tonnage, density, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confi dence, based on exploration sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely spaced to confi rm geological and/or grade continuity but are spaced closely enough for continuity to be assumed.

Inferred Mineral ResourceThat part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confi dence. It is inferred from geological evidence and assumed but not verifi ed in terms of geology and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability.

LeachingDissolution of metal from crushed or milled material using acid or cyanide, including reclaimed slime, before further processing.

Life of mine (LOM)Number of years that the operation is planning to mine and treat ore, and is taken from the current mine plan.

Measured Mineral ResourceThat part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confi dence. It is based on detailed and reliable exploration, sampling and testing, information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confi rm geological and grade continuity.

Metallurgical plantA processing plant erected to treat ore and extract gold. Milling: A process of reducing broken ore to a size at which concentrating can be undertaken. (See also “Comminution”).

Mine call factorThe ratio, expressed as a percentage, of the total quantity of recovered and unrecovered mineral product after processing with the amount estimated in the ore based on sampling. The ratio of contained metal delivered to the metallurgical plant divided by the estimated contained metal of ore mined based on sampling.

Mineral DepositA mineral deposit is a concentration of material of possible economic interest in or on the Earth’s crust.

Mineral ResourceA concentration or occurrence of material of economic interest in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity are known, estimated or interpreted from specifi c geological evidence and knowledge. Mineral Resources are subdivided, in order of increasing geological confi dence, into Inferred, Indicated and Measured categories.

Ounce (oz) (troy)Used in imperial statistics. A kilogram is equal to 32.1507 ounces. A troy ounce is equal to 31.1035 grams.


Common Mining Terms (continued)

Ore ReserveThe economically mineable part of a Measured and Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined. Appropriate studies have been carried out including consideration of and modifi cation by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These studies demonstrate that at the time of reporting extraction could reasonably be justifi ed. Ore Reserves are sub-divided into Proven & Probable and Possible Ore Reserves.

Pay limitThe grade of a unit of ore at which the revenue from the recovered mineral content of the ore is equal to the total cash cost including Ore Reserve Development and stay-in-business capital. This grade is expressed as an in-situ value in grams per tonne, ounces per short ton or % (before dilution and mineral losses).

Probable ReserveThe economically mineable part of an Indicated, Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate studies have been carried out, and include consideration of and modifi cation by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These studies demonstrate at the time of reporting that extraction could reasonably be justifi ed.

ProductivityAn expression of labour productivity based either on the ratio of ounces of gold or tonnes of metal produced per month to the total number of employees, area mined (in square metres) or metres advanced per month to the total number of employees in underground mining operations.

Proved ReserveThe economically mineable part of a Measured Mineral Resource including diluting materials and allowances for losses which may occur when the material is mined. Appropriate studies have been carried out and include consideration of and modifi cation by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These studies demonstrate at the time of reporting that extraction could reasonably be justifi ed.

Project capitalCapital expenditure to either bring a new operation into production; to materially increase production capacity; or to materially extend the productive life of an asset.

Recovered gradeThe recovered metal content per unit of ore treated.

RefiningThe fi nal purifi cation process of a metal or mineral.

RehabilitationThe process of reclaiming land disturbed by mining to allow an appropriate post-mining use. Rehabilitation standards are defi ned by country-specifi c laws including, but not limited to the US Bureau of Land Management, the US Forest Service, and the relevant Australian mining authorities, and address among other issues, ground and surface water, topsoil, fi nal slope gradient, waste handling and re-vegetation issues.

ShaftA (sub)vertical excavation for accessing a mine under ground used to transport personnel, equipment & supplies; hoisting ore & waste; ventilation & utilities; and/or as an auxiliary exit.

SmeltingA pyro-metallurgical operation in which metal is further refi ned or separated from impurities.

Stay-in-business capitalCapital expenditure to maintain existing production assets. This includes replacement of vehicles, plant and equipment, ore reserve development and capital expenditure related to safety, health and the environment.

StopeUnderground excavation where the orebody is extracted.

StopingThe process of excavating ore underground.

Stripping ratioThe ratio of waste tonnes to ore tonnes mined calculated as total tonnes mined less ore tonnes mined divided by ore tonnes mined.

TailingsFinely ground rock of low residual value from which valuable minerals have been extracted.

Tailings dam (slimes dam)Facilities designed to store discarded tailings.

TonUsed in imperial statistics equal to 2,240 pounds or 2,000 pounds referred to as a short ton.

TonnageQuantity of material measured in tonnes or tons.

TonneUsed in metric statistics equal to 1,000 kilograms.

WasteMaterial that contains insuffi cient mineralisation for consider-ation for future treatment and, as such, is discarded (see tailings).

YieldThe amount of valuable mineral or metal recovered from each unit of ore expressed as oz per short ton or grams per metric tonne or %.

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Course highlights• Learn the terminology of mining finance

• Understand how mining finance differs to equity investments and corporate finance

• Discover when finance is required throughout the different stages of mine development

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• Grasp how finance is structured in the mining industry

• Understand the risks involved in mining finance

• Save hours of research time and practise what you learn in class with case studies based on real-life scenarios

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Mining Finance Masterclass is a comprehensive training course that will help you understand mining finance quickly and in depth from both the banker’s and the miner’s point of view.

In association with

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www.mining-finance-masterclass.com

Course highlights• Learn the terminology of mining finance

• Understand how mining finance differs to equity investments and corporate finance

• Discover when finance is required throughout the different stages of mine development

• Identify who requires finance and how it is provided

• Grasp how finance is structured in the mining industry

• Understand the risks involved in mining finance

• Save hours of research time and practise what you learn in class with case studies based on real-life scenarios

masterclassFinance Mining financeexplained

Jakarta February 21 - 22, 2013

Singapore February 25 - 26, 2013

Hong Kong February 28 - March 1, 2013

London May 2 - 3, 2013

Vancouver May 6 - 7, 2013

New York May 9 - 10, 2013

Toronto June 6 - 7, 2013

London June 17 - 18, 2013

Mining Finance Masterclass is a comprehensive training course that will help you understand mining finance quickly and in depth from both the banker’s and the miner’s point of view.

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