Intierra State of the Market Mining and Finance Report Q1 2013

7/29/2019 Intierra State of the Market Mining and Finance Report Q1 2013

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Edition 1, 2013

State of the Market:Mining and Finance Report

Expert review of all aspects of the industry, recent performance

and quarterly outlook


2/29

02State of the Market: Mining and Finance ReportEdition 1, 2013

Hinde Sight 03Market for Mining 04

Exploration Hot Spots 06

Assay Share Price Alert 10

Metals Production Outlook 11

Mergers and Acquisitions 15

Mining Finance 16

Special Report: Overview of 2012 18

Special Report: Mining Royalties and Taxation 24

Contents

STATE OF THE MARKET: MINING AND FINANCE REPORT

Report is published by

IntierraRMG Pty Ltd

IntierraRMGAbbey House, 5th Floor74-76 St John StreetLondon, EC1M 4DZTel: +44 (0)20 7780 7470Website: www.intierraRMG.com

Contact

Chris HindeEditorial DirectorEmail: [email protected]

Kelly ChanMarketing Manager

Email: [email protected]

CONTRIBUTORS

sa BorssnRovino ChaudharyAlexander ElvingMagnus EricssonStuart FergusonNoxy HatungimanaChris HindeViktoriya LarssonOlof Lf

Jeremy Thompson

This report is supplied on a condential basis for the subscriber's use only. The contents must not be disclosed to third parties and it must not

be copied in whole or in part without the prior written permission of IntierraRMG Pty Limited. Photocopying and electronic forwarding prohibited.

Copyright 2013 IntierraRMG.
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If the abnormal (and still not complete) Glencore-Xstratatransaction is excluded, there were only US$46.0 billionof mining deals announced last year. The value of these

298 deals contrasts with the US$98.9 billion announcedin 2011.

Despite this worrying shortfall, there are signs that,at last, the supporting finance is becoming easier.Funds raised by mining companies in the quarter toend-December rose to US$6.8 billion, compared withonly US$5.5 billion in the September quarter, and thisrepresented a welcome increase on the monies raisedin the final quarter of 2011 (see p16).

In its forecast for 2013, IntierraRMG expectsmergers and acquisitions to gather steam, with

cash-rich companies targeting juniors. Meanwhile,the on-going weakness in traditional debt-equitymarkets will fuel ever more imaginative methodsof financing.

The targets will need to be low risk, however, withchief executives feeling the heat from over-valuedassets in previous periods of takeover activity. Forthe past few years it has been the CEOs at juniorcompanies that have been the subject of mostsympathy. Suddenly, it is executives who sit at thesharp end of planes that are under pressure, and fourof the leading mining companies are in the process ofchanging their leaders.

Rio Tinto recently announced an US$14 billion assetwrite down in its aluminium and coal divisions (twodays after announcing record iron-ore production).The write down in balance sheet value is equivalent toa shocking 13% of the Anglo-Australian companysmarket capitalisation, and the Board announced thatchief executive Tom Albanese was resigning withimmediate effect, and by mutual consent.

The bulk of the write down was the US$10-11 billionimpairment of the companys aluminium assets, mostof which were acquired with the US$38 billionpurchase of Alcan (a deal that was finally completedin November 2007, coinciding almost precisely witha peak in aluminium prices). The latest write-downbrings the total reduction in the carried value ofAlcans assets to almost US$28 billion.

However, Mr Albanese cant reasonably be blamedfor the Alcan debacle as the acquisition came veryearly in his tenure, which started in May 2007. Whatsealed his departure was the scarcely credible US$3billion charge against the companys coal assets inMozambique. This prize was acquired for US$3.7

billion less than two years ago.Mr Albaneses demise signals the start of what will be

a period of remarkable change at the top of the miningindustry. The boss of Anglo American, Cynthia Carroll,is leaving in April (to be replaced by AngloGold AshantisMark Cutifani), Mick Davis is due to leave Xstrata sixmonths after it merges with Glencore, and BHP Billitonis looking to replace Marius Kloppers.

The new executives will be taking the reins at achallenging time for the industry, with volatile metalsprices, increased political attention and widespreadunrest amongst stakeholders. There is particulardisquiet amongst employees, with strikes being

triggered by industry-wide cost-cutting measuresthat include swingeing redundancies.The leading mining companies will stick with what

they know best, and that means a continued focus oniron ore, copper and coal. However, the real test of theincoming CEOs will be how they reposition theircompanies to the new operating conditions. They will,surely, be more careful on valuing deals.

Resource-stock investors and city financiers have been risk averse for a few yearsbut suddenly it is the turn of the mining CEOs

Copper prices (US$/t)

Coal prices* (US$/t)Iron ore prices* (US$/t)

Gold prices (US$/oz)

Hinde Sight

Jan 2011 Dec 2012

80

90

100

110

120

130

140

150 * Australian thermal coal,(12,000btu/lb, under 1% sulphur, 14% ash,

FOB Newcastle/Port Kembla)

* 62% Fe CIF China

Jan 2011 Dec 20121,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

Jan 2011 Dec 20126,800

7,300

7,800

8,3008,800

9,300

9,800

10,300

Jan 2011 Dec 2012

100

110120

130

140

150

160

170

180


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State of the Market Reports

Each quarterly issue includes:

www.intierraRMG.com

FinanceMiningExploration

Market for Mining Exploration Hot Spots

Mergers and Acquisitions Exploration Results

Mining Finance Assay Highlights

Product Updates Special Features

The State of the Market Reports detail the state and outlook of the mining industry focusing on data-driven trends in

exploration, metals production, mining and finance. The report series provides data and opinion on the closed quarter,

plus forward views on the upcoming period. Contributors include Professor Magnus Ericsson and Dr. Chris Hinde.

Upcoming Special Features

Overview of the mining industry in 2012

Mining royalties and taxation Special Coverage: Cash cost data

Mid-year examination of the worlds metals stockpiles

Mining methods, and technology developments and trends

Metal prices, grade and tonnage predictions for 2014

State of the Market: Mining and Finance Report

State of the Market: Exploration Report

This quarterly report focuses specifically on exploration activities and

trends for the previous and upcoming quarters. It includes data and opinion

on exploration hot spots, drilling activity trends and exploration financing.

Each quarterly issue includes:

Drillers Log

Feasibility Studies

Capital Raising for Exploration

Exploration Hot Spots and Results

Assay Share Price Alert

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5/29


Mrket for Mining

The worls economies he continue to rift but we expectthe mining sector to strt its recoery this yer

The world economy continued to drift last year,with global growth falling to 2.3% from 3.8% in 2011(and 5.1% in 2010). The malaise was worst in theadvanced economies, which grew by only 1.3% lastyear, from 1.6% in 2011. Unfortunately, the emerging,developing, countries also recorded one of theirweakest economic growth rates in ten years, with anoverall increase of only 5.1% in 2012.

The lacklustre economic performance was attributedto uncertainty in Europe and the economic slowdownin China, where the growth rate dropped from 9.3% in2011 to 7.9% in 2012. This decline in GDP growth isattributed to a shift away from intensivemanufacturing and capital investments, toward

expenditure in the service sector (and intangible assetssuch as human capital).

In spite of these disappointments, a better overalloutcome is projected for 2013. We anticipate animprovement in Chinas economic growth, therestoration of fiscal authority in the US, anda stronger euro zone.

FISCaL CLIFF avOIdEdIn the quarter to end-December, the US continued tosuffer weak economic and employment growth,declining labour-force participation and shrinking realincomes. Moreover, the US trade deficit unexpectedly

grew in November, driven by an increase in imports ofconsumer goods.There was some good news from the US, of course,

with the White House and Congress finally reaching anagreement on the Federal Budget. This avoidedtriggering the so-called fiscal cliff, which would havebeen the culmination of a series of increasinglycontentious fiscal showdowns between the countrysDemocratic and Republican parties over the pastfew years.

Despite the deal, there is still no sign of acomprehensive, long-term, deal on deficit reduction,and the US debt remains unsustainable. The ObamaAdministration has simply delayed the tough decisions

until March, and the country could still suffer a seriesof mini crises this year. The growth rate for the US ispredicted to fall to 1.9% in 2013 from 2.2% in 2012.

EUROPEaN HOPEEven though unemployment in the euro area rose toa new high in November 2012, the December quarterwas generally positive. The European Central Bank(ECB) renewed its bond-purchase programme, whichrestored confidence in the financial markets andbought time for political leaders. Also, the decisionof the German Constitutional Court that thegovernments euro-rescue strategy was within theGerman constitution (given certain restrictions),

removed uncertainty about the future of therescue mechanism.

ECBs chief, Mario Draghi recently gave positiveviews on the state of the European economy, andbelieves that the euro area is showing early signs ofimprovement, and should grow modestly by the endof 2013. Elsewhere, the Dutch elections resulted in astable pro-euro coalition.

The likelihood of a serious crisis of confidence in theeuro zone has fallen considerably in the past quarter.However, country-level finances are still vulnerable,with some countries facing being frozen out of thecapital markets.

The euro zone is expected to grow by only 0.3% in2013, and just 1.4% in 2014.

EMERGING COUNTRIESIn the quarter to end-December, leadership issueswere settled in China but very little is known about thenew leaders attitudes. Which form of economicgrowth the new leadership chooses will be seen fromtheir GDP targets (to be announced in February). If thegrowth target remains at 7.5%, or above, then morepro-growth policies can be expected. If the growthtarget is lowered to 7%, say, then the Chinesegovernment may initiate a more gradual transition ofthe economy.

World

2010 2011 2012 2013f

8

7

6

5

4

3

2

1

0

Advanced economies

Emerging and

developing countries

GDP Growth (%) Five-year metas prices (US$/t)

2008 2009 2010 2011 20120

1,500

3,000

4,500

6,000

7,500

9,000

10,500

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000 Ni Cu (right scale)Aluminium (right scale)


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METAlS PRICE FORECAST

Raw Materials Group (RMG) expects expansionarymeasures by the European Union and the US in 2013.The worlds Central Banks are also likely to stimulate

growth, and will seek to avoid deflation. Moreover,the new political leaders in China are likely toannounce new measures to stimulate their economy.

With a growing risk of inflation, and a debasementof currencies, RMG expects a modest increase in thegold price this year to an average of US$1,850/oz,before slipping to US$1,800/oz in 2014.

RMG expects the price of iron ore (62% Fe CIFChina) to average US$125/t this year and US$120/t

in 2014.For the other major metals, RMG expects higher

average prices this year (compared with last yearsaverages) for aluminium, nickel and zinc, but a lower

year-on-year average for copper (see table).

The prices of nickel and zinc are expected tocontinue rising in 2014, while copper will continue itsdownward trend. Aluminiums performance is likely

to be lacklustre.RMG tracks a weighted-average price of a basket of

nine metals (iron ore, copper, zinc, nickel, lead, gold,silver, platinum and palladium), and this is shown in

the chart below (with the average price in 2000recalibrated to 100).

0

150

300

450

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f

Meanwhile, the December quarter saw ChinasGDP rise 7.8% (on an annualised basis), comparedwith 9.3% in the final quarter of 2011.The value ofChinas exports grew 14.1%, compared with a yearearlier (nearly three times as fast as expected), andwere led by shipments to the US.

Chinese imports rose to 6% in the Decemberquarter, partly because of an 11% jump in iron-oreimports as steel production rebounded. However,with Chinas imports having grown at a rate lessthan half as fast as its exports, China did not quiteserve as the locomotive to pull the rest of theworld out of recession.

The main driver of global growth recently has

been the worlds developing countries but theirgrowth has also slowed down considerably.Economic growth in both the emerging anddeveloping countries seems likely to beanaemic this year.

Nevertheless, generally improving financialconditions, as well as a loosening of monetarypolicy, should generate a slow improvement overthe course of 2013. Emerging and developingcountries are expected to grow by 5.5% in 2013.

METaL PRICE IMPLICaTIONSMost base metals started 2012 on a positive note

but this optimism proved to be short lived as pricesfell progressively through the year. This was due tothe slow growth rate in the global economy,sluggish demand from China, high stocks for mostmetals and an increase in the supply of somecommodities.

Nickel prices rose modestly in early 2012 butsubsequently fell back because of a weak marketfor stainless steel (the end use of more thantwo-thirds of nickel production), while copperprices fell initially on declining imports from China.The hitherto relatively high copper prices have alsoled to the substitution of copper in a variety ofuses, and to increased rates of recycling and

scrap recovery.Copper demand is expected to pick up this year,

with an economic recovery in the euro zonesupporting demand driven by China and otheremerging Asian markets. The early signs areencouraging, and copper prices hit their highestlevel in more than two months in January after theUS lawmakers avoided the fiscal cliff.

Aluminium prices dropped below US$2,000/tin the second quarter of 2012, and touchedUS$1,918/t in the third quarter (near to the pre-2005 levels) due to the global metal-supply surplusand high stocks, but prices picked up again in the

December quarter. We believe that the metal willcontinue to make ground in 2013 followinga rebound of the Chinese economy(the country accounts for almost half of globalmetal consumption).

Maor Metas Market

2012 2013f 2014f AluminiumOutput (Mt) 46.86 50.79 54.49Use (Mt) 46.69 50.08 53.48Balance (kt) 190 746 1,121Price (US$/t) 2,018 2,205 2,150CopperOutput (Mt) 20.11 20.91 21.75

Use (Mt) 20.06 20.74 21.40Balance (kt) 49 166 338Price (US$/t) 7,950 7,874 6,539NickelOutput (Mt) 1.72 1.81 1.94Use (Mt) 1.67 1.76 1.88Balance (kt) 43 48 56Price (US$/t) 17,527 17,670 18,385ZincOutput (Mt) 13.16 13.71 14.22Use (Mt) 12.86 13.48 13.92Balance (kt) 291 233 298Price (US$/t) 1,946 2,020 2,265

Metals price index


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Explortion Hot Spots

There is hope, t lst, for the mining sector espite new low in explortion ctiity

Last months exploration activity represented thelowest monthly total since February 2010, and meantthat the number of drilling reports has fallen for threeconsecutive months.

According to IntierraRMGs on-line database,IntierraLive, there was drilling reports from a total of356 prospects in December 2012 (this total includesreports from more than one drilling prospect perproject), compared with 675 in December 2011.

There has been a particular slump in drilling at goldprospects, with only 155 being reported in December,compared with the recent peak of 493 in November2011; see chart on p7. (Note that the sum of thethree one-month amounts in any quarter will be

considerably greater than the consolidated three-monthly project total shown in the drilling activitychart on p7, because of multiple reports of drillingfrom the same prospect, during the period.)

The slump in drilling reports over the past fewmonths left the total for calendar 2012 well behindthe number recorded in 2011, but still well ahead ofthe industrys nadir in 2010.

GOLd dOMINaTESAs normal, the search for gold dominated the reports ofdrilling activity during the quarter to end-December, witha total of 702 prospects (1,111 in the final quarter of

2011). The next most significant exploration targets (interms of individual drilling prospects) were copper (238),silver (174) and zinc (72); see tables opposite.

Canada led the way in the gold sector, with 192prospects reporting drilling activity, followed by 114in Australia and 52 in the US. However, these numbersare dramatically lower than the year-ago period, whenthe figures were 279, 218 and 88, respectively, for thethree countries. Indeed, drilling activity for gold in thewhole of North and Central America has fallen from443 in the final three months of 2011 to just 299 inthe quarter just ended.

The next most important region for gold-drillingactivity in the December quarter was Australasia

(with reports from 116 projects), followed by Africa(108) and South America (88). Nevertheless,Australasia has seen a particularly sharp decline ingold exploration, with drilling reports falling 47%since the year-ago quarter.

Australia remains the leading exploration destinationfor copper, with 64 prospects reporting drillingactivity during the quarter just ended. This total issharply lower, however, than the year ago figure (94),and leaves the country only just ahead of Canada (60in the December quarter, and 66 a year ago).

Copper exploration has also fallen sharply in the US,with just 18 prospects reporting drilling during the

final quarter of 2012, compared with 29 reports in theyear-ago period.Nevertheless, North and Central America again led

the way in the search for the metal, with a total of 90reports during the quarter (113 a year ago), compared

with 64 (94) in Australasia, 33 (23) in Africa and28 (36) in South America.These targets are illustrated geographically in the

Activity Map opposite.Measuring the drilling reports in terms of the

primary-listing location of the company making theannouncement, it is clear that Canadian companiesare in the ascendancy.

Companies listed on the Toronto Stock Exchange(TSX) and TSX-Venture Exchange (together the TMX)accounted for 53% of the 238 copper reports in thequarter just ended, and 60% of the 702 gold-drillingreports. Companies listed on the Australian StockExchange (ASX) accounted for 43% of the copper, and

29% of the gold, reports. Companies listed on theLondon Stock Exchange and AIM (together abbreviatedhere as LSE) hardly featured for either metal.

For copper, the year-ago proportions were 48% and47% for TMX and ASX, respectively, and 55% and 31%for gold drilling.

TMX-listed companies also dominated the drillingreports for lead, silver and zinc; see tables opposite.

SLUMP IN REPORTEd RESOURCESNot surprisingly, the decline in drilling announcementsduring the past three months had a knock-on effecton the announcement of mineral resources and ore

reserves (see tables on p9).Contained gold in mineral resources announcedduring the December quarter were little changed fromthe September quarter at 79.4Moz. This represents aslump, however, compared with the year-ago period,when announced resources contained 232.4Moz.

The shortfall in gold resources came mainly in theUS (down from 35.0Moz to 6.9Moz) and in Canada(42.5Moz to 20.8Moz). Together with a shortfall inMexico, this meant announced gold resources in Northand Central America had fallen two-thirds between theDecember quarters of 2011 and 2012.

There was a similar slump in announced goldreserves, which fell to 15.7Moz (contained metal) in

the quarter just ended, compared with 78.2Moz a yearago. The damage was caused by massive reductions inthe Americas and Africa.

The picture was scarcely any better for copper.Resources reported in the December quarter containedjust 22.3Mt, comparing favourably with 16.7Mt in theSeptember quarter but well down on the 107.4Mtreported a year ago.

The reporting of new copper resources collapsedacross the globe, with the contained metal in SouthAmerican falling from 63.1Mt a year ago to 12.5Mt inthe period just ended.

Copper reserves were little changed from the

previous quarter (5.2Mt, compared with 6.2Mt in theSeptember quarter) but were dramatically lower than ayear ago (35.2Mt). Most of the damage was fromexploration projects in South America.

There was a similar story for other metals.


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Silver

Dec Q2012

Sep Q2012

Dec Q2011

Canada 39 31 56

Australia 18 23 22

USA 21 25 26

Mexico 47 48 67

Brazil

N&C America 112 110 151S. America 24 56 55

Europe 2 10 8

Africa 5 14 9

Asia 13 15 16

Australasia 18 23 22

TSX/TSX-V* 115 151 172

ASX* 28 40 49

London* 15 15 15

TOTAL 174 228 261

* Primary listing of issuing company

Zinc

Dec Q

2012

Sep Q

2012

Dec Q

2011Canada 23 14 24

Australia 15 27 22

USA 6 5 9

Mexico 5 8 17

Brazil

N&C America 37 29 50

S. America 6 15 9

Europe 4 7 7

Africa 5 2 3

Asia 5 9 7


TSX/TSX-V* 44 39 52

ASX* 21 35 37London* 2 4 3

TOTAL 72 89 98


Copper

Dec Q2012

Sep Q2012

Dec Q2011

Canada 60 50 66

Australia 64 83 94

USA 18 17 29

Mexico 7 8 16

Brazil 2 4 7


S. America 28 31 36

Europe 10 21 10

Africa 33 31 23

Asia 13 28 40


TSX/TSX-V* 127 140 151

ASX* 103 128 147

London* 4 2 4

TOTAL 238 277 316


Lead

Dec Q2012

Sep Q2012

Dec Q2011

Canada 17 10 16

Australia 11 17 14

USA 4 3 6

Mexico 5 7 19

Brazil


S. America 1 9 9

Europe 2 4 5

Africa 3 2 1

Asia 5 9 5


TSX/TSX-V* 27 31 44

ASX* 17 23 24

London* 3 3 3

TOTAL 48 61 75


Gold

Dec Q2012

Sep Q2012

Dec Q2011

Canada 192 198 279

Australia 114 209 218

USA 52 72 88

Mexico 42 44 60

Brazil 23 21 32

N&C America 299 328 443

S. America 88 109 129

Europe 37 49 35

Africa 108 158 178

Asia 54 57 106


TSX/TSX-V* 422 511 615

ASX* 203 313 346

London* 47 43 57

TOTAL 702 911 1111


GlObAl DRIllING ACTIVITY

QUARTERlY DRIllING REPORTS (Individua Prospects)

ACTIVITY MAP (December Quarter)

Operational Development Exploration


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TOP-RANKED ASSAYS (Decemer quarter; grade x intersection)

COPPER Company Project HoleGrade

(%)Intersection

(m)Depth

(m) Project Location

1 OZ Minerals Ltd Carrapateena DD12CAR090W1 0.90 1,492.0 609.0 65km E Woomera (Australia)

2 Blackthorn Resources Ltd Kitumba KITDD_005 3.02 220.0 206.0 180km WNW Lusaka (Zambia)

3 Atico Mining Corp El Roble ATDHR-17 5.41 88.7 71.8 75km SW Medellin (Colombia)

4 Africo Resources Ltd Kalukundi BH ANTD006 5.29 80.7 25.8 30km ENE Kolwezi (Congo DR)

5 Intrepid Mines Ltd Tumpangpitu Sulphide GTD-12-350 0.68 568.9 498.0 209km SE Surabaya (Indonesia)

6 CuDeco Ltd Rocklands Group NVB018 7.45 47.0 165.0 17km WNW Cloncurry (Australia)

7 Pilot Gold Inc TV Tower (Kucukdag) KCD056 6.96 46.7 102.7 20km SE anakkale (Turkey)

8 Reservoir Minerals Inc Brestovac-Metovnica (Chukaru) FMTC 1217 3.17 100.0 584.0 5km S Bor (Serbia)

9 NovaCopper Inc Bornite (South Reef Zone) DDH RC12-0216 4.45 55.7 671.0 65km ENE Ambler (US)

10 Peel Mining Ltd Mallee Bull MBDD009 3.48 69.0 533.0 105km SSE Cobar (Australia)

GOLD Company Project HoleGrade(g/t)

Intersection(m)

Depth(m) Project Location

1 Pilot Gold Inc TV Tower (Kucukdag target) KCD-50 193.0 12.0 117.5 20km SE anakkale (Turkey)2 ABM Resources NL Old Pirate (Golden Hind prospect) GHRC100014 44.0 42.0 0.0 625km NW Alice Springs (Australia)

3 Golden Rim Resources Ltd Balogo (Netiana) BDH012 111.0 13.0 56.0 105km S Ouagadougou (Burkina Faso)

4 Northquest Ltd Pistol Bay (Vickers) PB-12-22 8.2 156.5 87.0 60km SSW Rankin Inlet (Canada)

5 Gran Colombia Gold Corp Marmato MT-1500 1.6 618.1 394.0 85km S Medellin (Colombia)

6 Pretium Resources Inc Brucejack (Valley of the Kings) SU-584 187.0 4.7 135.8 240km N Prince Rupert (Canada)

7 Atna Resources Ltd Pinson PRC-12-006 47.4 18.3 1.5 42km ENE Winnemucca (US)

8 Unity Mining Ltd Henty (Read zone) Z18553 269.0 3.1 105.7 30km N Queenstown (Australia)

9 Centerra Gold Inc Kumtor (SB zone) D1653 7.7 109.3 494.1 180km SSE Almaty (Kyrgyzstan)

10 Bralorne Gold Mines Ltd Bralorne-Pioneer UB12-015 386.0 2.1 163.7 74km N Whistler (Canada)

LEAD Company Project HoleGrade

(%)Intersection

(m)Depth


1 Eurasian Minerals Inc Balya (Hastanetepe) DB-81 13.80 18.0 33.0 28km WNW Balikesir (Turkey)

2 El Nino Ventures Inc Murray Brook MB-2012-138 4.58 45.4 179.6 56km WSW Bathurst (Canada)

3 Buchans Minerals Corp Lundberg-Engine House H-12-3475 1.34 134.8 59.5 15k E Buchans (Canada)4 US Silver & Gold Inc Galena (Lead Zone) DH49-196 17.40 6.4 78.6 2km W Wallace (US)

5 Rathdowney Resources Ltd Olza OLZ-147 3.88 27.3 134.4 Near Zawiercie (Poland)

6 Balamara Resources Ltd Brskovo DH3-12 3.63 28.0 111.0 70km NNE Podgorica (Montenegro)

7 Silvercorp Metals Inc Ying/SGX (S7-1) ZK07AS7-103 41.50 2.2 203.6 120km SW Luoyang (China)

8 Golden Tag Resources Ltd San Diego SD-12-50W 0.55 152.7 818.8 50km SSW Torreon (Mexico)

9 MacPhersons Resources Ltd Nimbus East NBRC216 4.70 17.0 205.0 20km ESE Kalgoorlie (Australia)

10 Red Metal Ltd Maronan MRN12003B 4.79 15.9 1,228.0 155km ESE Mt Isa (Australia)

SILVER Company Project HoleGrade(g/t)

Intersection(m)

Depth(m) Project Location

1 Sierra Metals Inc Promontorio (Cuerpo Oriente) B509 753.0 48.9 376.5 20km SSE Cuauhtemoc (Mexico)

2 Tahoe Resources Inc Escobal (East) 375 490.0 70.5 699.0 44km ESE Guatemala City (Guatemala)

3 Investigator Resources Ltd Peterlumbo PPDH023 2,591.0 10.0 165.0 165km W Port Augusta (Australia)


5 Brixton Metals Corp Thorn THN12-83 165.0 150.5 24.0 98km ENE Juneau (Canada)6 Silver Standard Resources Inc Pirquitas (Cortaderas Breccia) DDH-250 206.0 120.8 76.0 207km NW San Salvador de Jujuy (Argentina)

7 GoGold Resources Inc San Diego (Chispa De Oro) GGS-056 87.0 194.3 31.2 110km SW Durango (Mexico)

8 Hecla Mining Co Greens Creek (South West Bench) GC3364 603.0 22.3 0.0 28km SW Juneau (US)

9 Focus Ventures Ltd El Reventon (Reventon Breccia) RC-08-8 71.3 155.4 13.7 55km NE Cosala (Mexico)

10 Hochschild Mining plc Arcata (Alexia) DDH400-S-12 984.0 9.3 0.0 75km NNW Cabanaconde (Peru)

ZINC Company Project HoleGrade

(%)Intersection

(m)Depth


1 Silver Standard Resources Inc Pirquitas (Cortaderas Breccia) DDH-250 5.0 120.8 76.0 207km NW San Salvador de Jujuy (Argentina)

2 Silver Bull Resources Inc Sierra Mojada (Shallow Silver Zone) T12116 13.9 40.4 0.0 190km N Gmez Palacio (Mexico)


4 Buchans Minerals Corp Lundberg-Engine House H-12-3475 3.1 134.8 59.5 15km E Buchans (Canada)

5 El Nino Ventures Inc Murray Brook MB-2012-138 8.5 45.4 179.6 56km WSW Bathurst (Canada)

6 Venturex Resources Ltd Sulphur Springs (copper/zinc mine) SSR002 19.4 11.0 174.0 112km SSE Port Hedland (Australia)

7 Golden Tag Resources Ltd San Diego SD-12-50W 1.4 152.7 818.8 50km SSW Torreon (Mexico)8 Hecla Mining Co Greens Creek (South West Bench) GC3451 10.7 16.8 0.0 28km SW Juneau (US)

9 Cazaly Resources Ltd Mt Angelo North HCRC0005 2.8 62.0 24.0 35km WSW Halls Creek (Australia)

10 Imperial Metals Corp Ruddock Creek (V zone) RD-12-V38 24.0 6.4 175.3 100km NNW Revelstoke (Canada)

Explortion Results

Summry of the best ssy results uring the pst qurter, n new resources/reseres


10/29


So, does the level of exploration activity, shown onp7, signal continued doom and gloom? Well, yes, andno. Even allowing for the skewing effect of a fewlarge exploration results, the numbers are clearlyawful. But they do not tell the whole picture. Therehas been a significant increase recently in fundsraised for exploration, which suggests that drilling

activity might start rising again in the months ahead.According to calculations by IntierraRMG, fundsraised for exploration rose sharply in the quarter toend-December, reaching over US$3.4 billion. Thiscontrasts with the paltry US$1.8 billion raised in theSeptember quarter and is 19% better than the finalthree months of 2011 (see p17).

QUARTERlY REVIEw OF RESERVES / RESOURCES ANNOUNCEMENTSGOLD RESOURCES (oz; contained metal) GOLD RESERVES (oz; contained metal)

Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011Canada 20,811,907 16,972,667 42,486,655 Canada 5,751,064 7,161,921 5,508,473Australia 9,040,018 3,549,161 10,850,697 Australia 2,451,408 225,951 1,812,461USA 6,918,025 3,463,209 34,990,622 USA 664,142 24,557,733

Mexico 106,346 316,357 5,950,056 Mexico 4,142,319 478,032Brazil 8,080,381 4,732,025 8,036,141 Brazil 2,370,125 855,155 2,051,849

N&C America 28,875,291 21,378,822 84,217,187 N&C America 7,882,047 12,075,160 33,241,378S. America 21,612,522 9,340,498 35,515,569 S. America 2,370,125 1,706,712 19,929,943Europe 9,619,509 9,148,874 16,790,636 Europe 2,288,185 3,193,644Africa 4,272,516 18,037,167 49,498,731 Africa 1,192,458 2,988,933 15,084,165Asia 5,994,715 16,574,851 33,784,548 Asia 1,769,402 14,566,693 4,952,385Australasia 9,040,018 3,549,161 12,552,027 Australasia 2,451,408 225,951 1,812,461TOTAL 79,414,571 78,029,373 232,358,698 TOTAL 15,665,440 33,851,634 78,213,976

COPPER RESOURCES (t; contained metal) COPPER RESERVES (t; contained metal)Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011

Canada 344,842 358,759 5,633,152 Canada 2,541,972 943 1,548,578Australia 225,986 1,754,448 2,991,735 Australia 40,488 49,406 445,271USA 381,974 5,927,462 2,085,063 USA 109,864 698,208 358,809Mexico 1,090,298 4,832,905 Mexico 65,592Brazil 319,752 236,138 Brazil 444,449 75,787

N&C America 726,816 7,510,007 12,694,538 N&C America 5,172,326 786,847 2,422,510S. America 12,545,239 1,263,608 63,097,753 S. America 670,049 23,168,430Europe 811,350 87,027 1,984,578 EuropeAfrica 4,933,456 737,029 14,210,886 Africa 26,000 83,200 1,631,417Asia 3,024,759 5,334,250 12,393,819 Asia 4,657,200 7,517,888Australasia 225,986 1,754,448 2,991,735 Australasia 40,488 49,406 445,271TOTAL 22,267,606 16,686,369 107,373,309 TOTAL 5,238,814 6,246,702 35,185,516

SILVER RESOURCES (oz; contained metal) SILVER RESERVES (oz; contained metal)Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011

Canada 59,960,804 45,326,851 86,131,090 Canada 52,063,691 1,919,488Australia 37,421,986 9,672,896 148,594,985 Australia 1,077,214 1,907,375 2,263,412USA 41,424,856 82,496,983 456,390,869 USA 17,574,792 105,952,706Mexico 37,160,251 379,747,649 446,601,438 Mexico 387,150,783 45,002,369 44,776,110Brazil 263,293 Brazil

N&C America 139,809,216 514,125,635 1,016,688,374 N&C America 465,968,234 62,577,161 179,565,248S. America 113,629,100 62,203,594 525,615,929 S. America 8,240,753 145,811,332Europe 32,965,357 17,327,272 274,108,874 Europe 9,976,485 4,794,340Africa 33,808,951 16,798,475 16,236,029 Africa 752,649 5,462,092Asia 12,120,759 86,132,977 189,699,267 Asia 1,458,459 52,534,110Australasia 37,421,986 9,672,896 148,594,985 Australasia 1,077,214 1,907,375 2,263,412TOTAL 369,755,369 706,260,849 2,170,943,458 TOTAL 469,256,556 88,163,866 384,968,442

ZINC RESOURCES (t; contained metal) ZINC RESERVES (t; contained metal)Dec Q 2012 Sep Q 2012 Dec Q 2011 Dec Q 2012 Sep Q 2012 Dec Q 2011

Canada 336,111 969,705 7,543,713 CanadaAustralia 108,800 3,451 2,591,072 Australia 66,091 77,600USA 20,059 668,954 817,240 USA 60,735Mexico 76,360 2,121,228 1,203,944 Mexico 806,254 30,460Brazil Brazil

N&C America 432,530 3,759,887 9,564,897 N&C America 806,254 107,703S. America 27,942 445,421 2,106,765 S. America

Europe 1,978,940 214,246 898,035 Europe 32,420Africa 2,106,290 591,939 316,124 Africa 579,600Asia 335,003 25,203 779,889 Asia 35,649Australasia 108,800 3,451 2,591,072 Australasia 66,091 77,600TOTAL 4,989,505 5,040,147 16,256,782 TOTAL 872,345 579,600 253,372


11/29


Despite the sharp reduction in drilling activity(as reported) during the quarter just ended, therehave been remarkable intersections during the pastfew months; and some have had an astonishing impacton share prices.

The ten top-ranked assays are shown in the tableson p8 for each of five metals (simply measured bytaking the average grade multiplied by the intersectionlength, and taking no account of depth).

Top of the ranking for the copper assays during theDecember quarter was a drill hole on OZ Minerals'Carrapateena project in Australia, which returned0.90% Cu over 1,492m (at a depth of 609m). In secondplace was an assay at Blackthorn Resources' Kitumba

project in Zambia which yielded 3.02% Cu over 220m(at 206m). Ranked third was an 89m intersectiongrading 5.41% Cu at Atico Minings El Roble projectin Colombia.

The top gold intersection during the Decemberquarter was Pilot Golds 193g/t, over 12m (at a depthof almost 118m) on its TV Tower project in Turkey (fora grade-intersection value of 2,316m.g/t). In secondplace during the quarter (but noteworthy because the

intersection was from surface) was 44g/t over 42m atABM Resources Old Pirate project in Australia.Some of the intersections announced during the

past quarter had a significant effect on the shareprice of the owners (see list below). Ten-day share-price gains of over 60% were recorded by NeweraResources and Greenpower Energy for their projectsat Shanagan Uul and Mirboo, respectively. A furthereight companies saw their share prices appreciateby more than 25% in the ten days followinga drilling announcement.

Indicative of the lacklustre exploration activity (andmarkets) in the final weeks of the year, only one of the28 instances of share prices rising over 12% (measured

ten days after an exploration announcement) was inDecember. There were 17 such share-price rises inOctober and 10 in November. Indeed, even this oneexploration share-price spike in December was byNewera, which had set the quarters record price gainduring the previous month. Despite a share-priceretreat between the two drilling reports, Newerasshare price doubled; demonstrating the abiding appealof junior stocks.

IMPACT OF DRIllING RESUlTS ON SHARE PRICES (Decemer Quarter)

SHARE PRICE (US$)

COMPANY NAME PROPERTY PRESS RELEASE FROM TO* GAIN (%)Newera Resources Ltd Shanagan Uul East November 0.021 0.035 66.7

Greenpower Energy Ltd Mirboo October 0.040 0.064 60.0

Aguia Resources Ltd Tres Estradas November 0.130 0.180 38.5

Indico Resources Ltd Maria Reyna October 0.180 0.240 33.3

Newera Resources Ltd Shanagan Uul East December 0.030 0.039 30.0

Cockatoo Coal Ltd Baralaba October 0.140 0.180 28.6

Marmota Energy Ltd Angel Wing October 0.072 0.090 25.0

Stellar Resources Ltd Heemskirk October 0.080 0.100 25.0

Foyson Resources Ltd New Britain November 0.008 0.010 25.0

Merah Resources Ltd Lawlers October 0.200 0.250 25.0

St George Mining Ltd East Laverton October 0.250 0.310 24.0

Navarre Minerals Ltd Bendigo North October 0.130 0.160 23.1

Atrum Coal NL Groundhog October 0.180 0.220 22.2

Hannans Reward Ltd Pahtohavare November 0.015 0.018 20.0

International Goldfields Ltd Latin October 0.027 0.032 18.5

Talga Resources Ltd Nunasvaara October 0.300 0.355 18.3

Blackthorn Resources Ltd Kitumba October 1.100 1.285 16.8

Kalgoorlie Mining Co Bullant October 0.006 0.007 16.7

Haranga Resources Ltd Bayantsogt November 0.155 0.180 16.1

Eagle Hill Exploration Corp Windfall Lake November 0.125 0.145 16.0

Monax Mining Ltd Punt Hill October 0.048 0.055 14.6

Northern Minerals Ltd Browns Range October 0.210 0.240 14.3

Shaw River Manganese Ltd Otjozondu November 0.014 0.016 14.3

Sirius Resources NL Nova October 2.180 2.480 13.8

Emmerson Resources Ltd Orlando November 0.120 0.135 12.5

International Goldfields Ltd Latin November 0.024 0.027 12.5

Latin Resources Ltd Mariela October 0.160 0.180 12.5Eagle Hill Exploration Corp Windfall Lake November 0.125 0.140 12.0

Sirius Resources NL Nova October 2.180 2.430 11.5

* Share price ten days following assay announcement

assy Shre-Price alert

Mny of the rill intersections nnounce uring the pst qurterh significnt shre-price impct


12/29


Emerging t inictes positie groth in globl metls prouction

Metls Prouction Outlook

Early production announcements for the three monthsto end-December (Q4) demonstrate positive growth inmetals production, compared with results publishedfor the September Quarter (Q3).

The weighted average of all announced Q4production showed an 18% increase in gold output,a 6% improvement in copper and 3% rise in iron-ore,compared with production in the prior three-monthperiod. As indicated in the Region chart below, thestrongest rises came in Africa and in Asia. The size ofthe spike in Asian gold being partially due to CenterraGolds announcements that they had overcomeproduction delays at Kumtor.

Details of global production can only be confirmed

many months after the end of the relevant reportingperiod as production statistics are slow to be releasedby producers. Global mine production analysis istherefore best done on an annualised basis. However,viewing consolidated global tables of early productionannouncements each quarter does provide a moreimmediate barometer of production results.

The tables below list those mines that have alreadyannounced their production for the December quarter,and where this amount is more than 10% different fromthe production in the September quarter. (Our netfigures above include all early-reporting operations,not just those that have signalled the greatest changes.)

Notable changes include operations in the coppersector, where the biggest actual increase in production

(quarter-over-quarter) came at the massive Escondidamine. Production there has benefited from the transitionto higher-grade ore feed, and the successful completionof large-scale maintenance programmes to increaseconcentrator throughput.

In the gold sector, a number of North American andAfrican mines showed strong Q4 production increases.For example, Goldcorp's cornerstone mine, Red Lake,ended the year with operational stability, a strongproduction result and newly-discovered mineralisedzones. The latter hold the potential to contribute tothe production profile over the longer term.

Most of last year was a challenge for CenterraGolds Kumtor operation in Kyrgyzstan, with extreme

weather, and low grades in the Central Pit, impactingon production. However the year ended strongly,and their forecast is positive for 2013.

Two of the most significant Australian iron-oremines announced sharply higher production forthe December quarter, with strong results fromChichester Range and Yandi.

The result from Chichester Range contributed toFortescues announcement that in December 2012the company's operations had achieved an annualisedshipping rate of more than 100Mt/y. The resultfrom Yandi helped BHP Billiton to announce thatits Western Australia Iron Ore (WAIO) division had

delivered a 12th consecutive December half yearproduction and sales record.

COMMODITY REGIONAl CHANGE QUARTER ON QUARTER

AFRICA ASIA AUSTRALIA EUROPE NORTH AMERICA(inc MEXICO) SOUTH AMERICA

100%

80%

60%

40%

20%

0%

-20%

-40%

Copper Iron Ore Gold


13/29


EARlY PRODUCTION ANNOUNCEMENTS: GOlD (oz)

Company Q3,2012 Q4,2012 Rise / Fall Change (%)

AFRICA

Buzwagi African Barrick Gold plc 30,211 64,828 34,617 115

Sukari Centamin plc 60,922 85,543 24,621 40

Bogoso-Prestea Golden Star Resources Ltd 39,844 50,230 10,386 26

Kansanshi First Quantum Minerals Ltd 35,245 45,410 10,165 29

North Mara African Barrick Gold plc 53,120 63,235 10,115 19

Kalsaka Amara Mining plc 14,369 11,480 -2,889 20

ASIA

Kumtor Centerra Gold Inc 23,786 189,438 165,652 696

Grasberg Freeport-McMoRan C&G 227,000 249,000 22,000 10

Lihir Newcrest Mining Ltd 129,311 147,126 17,815 14

Boroo Centerra Gold Inc 18,938 29,878 10,940 58

AUSTRALIA

Boddington Newmont Mining Corp 167,000 216,000 49,000 29

Macraes OceanaGold Corp 36,874 58,872 21,998 60

Telfer Newcrest Mining Ltd 110,372 128,995 18,623 17Pajingo Evolution Mining Ltd 15,651 24,340 8,689 56

Bronzewing Navigator Resources Ltd 20,368 17,431 -2,937 14

Edna May Evolution Mining Ltd 25,925 22,763 -3,162 12

EUROPE

Berezitovy High River Gold Mines Ltd 33,241 37,100 3,859 12

NORTH AMERICA

Red Lake Goldcorp Inc 121,200 168,100 46,900 39

Mulatos Alamos Gold Inc 43,500 67,800 24,300 56

Hycroft Allied Nevada Gold Corp 25,482 46,900 21,418 84

Porcupine Goldcorp Inc 53,100 74,100 21,000 40

Seabee Claude Resources Inc 15,073 12,760 -2,313 15

SOUTH AMERICASao Francisco Aura Minerals Inc 19,814 28,584 8,770 44

Andorinhas Troy Resources Ltd 9,975 8,056 -1,919 19

* announcements with change >10%

EaRLy waRNINGA prompt opinion of supply trends can also be gainedby assessing new mine openings during each quarter.

The methodology used in this section of the reportanalyses data from those mines that have formallyannounced initial metals production during thepreceding quarter. The actual metals output willnaturally vary as the mines are in various stages ofa ramp-up, so we monitor the ore reserves at thesenew mines. This provides a snapshot of the emergingproduction potential.

One such mine is Barrick Golds 60%-owned PuebloViejo gold mine in the Dominican Republic. Initialproduction was announced during the December

quarter from an operation that is exploiting adeposit containing 25.3Moz of gold. Subsequentannouncements indicate that ramp-up to fullcapacity is expected to occur in the second half of

this year, and production for calendar 2013 isanticipated to be 500,000-650,000oz.Production at Rio Tintos Benga coal mine in

Mozambiques Moatize Basin continues to ramp up.The company notes that work has been undertakento expand capacity on the Sena railway line toeliminate a bottleneck in the system.

With no new iron-ore mines coming on streamduring the quarter to end-September, the recentstart of production at Karara had a significantimpact on the Q3-Q4 comparison table for newlyintroduced ore reserves. Similarly, there was alarge jump in gold and silver deposits that havenow reached development.

The December quarter was also significant formagnetite, with the mid-November announcementby Gindalbie Metals Ltd that it had produced thefirst magnetite concentrate from its Karara project.

continue

Metls Prouction Outlook


14/29


EARlY PRODUCTION ANNOUNCEMENTS: IRON ORE (t)

Company Q3,2012 Q4,2012 Rise / Fall Change (%)

AFRICA

Kolomela Kumba Iron Ore Ltd 2,500,000 2,793,000 293,000 12

Marampa London Mining plc 373,000 546,000 173,000 46

Thabazimbi Kumba Iron Ore Ltd 241,000 182,000 -59,000 24

Sishen Kumba Iron Ore Ltd 9,756,000 6,038,000 -3,718,000 38

AUSTRALIA

Chichester Range Fortescue Metals Group 15,400,000 19,100,000 3,700,000 24

Yandi BHP Billiton Ltd 16,201,000 18,769,000 2,568,000 16

Tallering Peak Mount Gibson Iron Ltd 504,000 672,000 168,000 33

Koolan Island Mount Gibson Iron Ltd 793,000 913,000 120,000 15

Karara (DSO) Gindalbie Metals Ltd 350,000 406,000 56,000 16

Goldsworthy JV BHP Billiton Ltd 508,000 445,000 -63,000 12

West Angelas Rio Tinto Ltd 8,037,000 7,183,000 -854,000 11

James Labrador Iron Mines Holdings 1,141,000 327,000 -814,000 71


EARlY PRODUCTION ANNOUNCEMENTS: COPPER (t)

Company Q3, 2012 Q4, 2012 Rise / Fall Change (%)

AFRICA

Palabora Palabora Mining Co 5,600 12,100 6,500 116

Guelb Moghrein First Quantum Minerals 8,656 11,038 2,382 28

Mowana African Copper plc 2,882 2,577 -305 11

ASIA

Gedabek Anglo Asian Mining plc 132 116 -16 12

Cayeli Inmet Mining Corp 7,800 7,000 -800 10

AUSTRALIA

Nifty Aditya Birla Minerals Ltd 11,075 13,800 2,725 25

Boddington Newmont Mining Corp 6,800 8,600 1,800 26

Cadia Valley Newcrest Mining Ltd 11,682 13,264 1,582 14DeGrussa Sandfire Resources NL 21,181 16,392 -4,789 23

EUROPE

Kevitsa First Quantum Minerals Ltd. 4,004 6,896 2,892 72

Aguablanca Lundin Mining Corp 697 1,563 866 124

Neves-Corvo Lundin Mining Corp 14,012 11,988 -2,024 14

NORTH AMERICA

Bingham Canyon Rio Tinto Ltd 42,900 59,300 16,400 38

Safford Freeport-McMoRan C&G 17,000 21,000 4,000 24

Chino Freeport-McMoRan C&G 17,500 20,500 3,000 17

Pinto Valley BHP Billiton Ltd 1,200 1,700 500 42

Bolivar Sierra Metals Inc etc 668 981 313 47

Aranzazu Aura Minerals Inc 1,114 927 -187 17

Lockerby First Nickel Inc 650 450 -200 31

Troy Revett Minerals Inc 1,071 457 -614 57

Minto Capstone Mining Corp 5,241 4,069 -1,172 22

SOUTH AMERICA

Escondida BHP Billiton Ltd 248,000 280,900 32,900 13

Spence BHP Billiton Ltd 34,900 40,900 6,000 17

Santa Rita Mirabela Nickel Ltd 1,704 1,507 -197 12



15/29


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16/29


Deals in the mining industry during the Decemberquarter were valued at just US$13.9 billion. Of the71 deals announced during the three-month period,33 were for gold assets (worth US$2.7 billion) and14 were for copper assets (worth US$7.1 billion).This brought deals announced during 2012 toUS$80.0 billion, which includes the huge Glencore-Xstrata amalgamation, worth US$34.0 billion.

The 25% quarter-on-quarter increase in mergers andacquisitions (in value terms) during the three months toend-December was buoyed by First Quantums hostileoffer for Inmet Mining in December. However the numberof deals announced fell slightly (see chart on right).

Copper and gold deals topped the list (in terms of

value), with nickel in third place (ahead of iron ore).Canadian companies led the way in the quarter just

ended, in terms of both value and the number of deals.Chinese overseas acquisitions (up a remarkable 60%quarter-on-quarter), primarily in lithium and copper,earned them second place, ahead of the UK, the USand Australia.

Mergers n acquisitions

The december qurter sw ecline in the number of mining elsbut the oerll lue increse

0

10

20

30

40

50

60

70

80

90

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

March Q June Q September Q December Q

Valueofdeals(US$million)

Number of deals announced

Glencore/Xstrata

AA Sur

FirstQuantum/Inmet

METAlS M&A (2012)

lARGEST MINING DEAlS (DECEMbER QUARTER 2012)

Announced Status ObjectMainmetal

Share(%)

Value(US$m)

Objectcountry Buyer

Buyerscountry Seller

Sellerscountry

Dec Pending Inmet Mining Corp Copper 100.0 4,999.5 Canada First Quantum Minerals Canada n/a

Dec Pending Norilsk Nickel Nickel 5.9 1,487.0 Russia Millhouse LLC Russia UC Rusal Russia

Oct Pending Discovery Metals Ltd Copper 88.3 844.5 Australia Cathay Fortune Corp China n/a

Dec Pending Talison Lithium Ltd Lithium 100.0 831.3 Australia Chengdu Tianqi Industry China n/a

Oct Closed Ocampo OP gold/silver mine Gold 100.0 735.2 Mexico Minera Frisco SAB de CV Mexico AuRico Gold Canada

Dec Closed Camrose Resources Copper 49.5 550.0 UK ENRC UK n/a

Dec Pending Mimosa Holdings PGM 51.0 550.0 Zimbabwe Local investors Aquarius Plat Australia

Nov Closed Queenston Mining Inc Gold 100.0 539.2 Canada Osisko Mining Corp Canada n/a

Nov Pending Kalagadi manganese deposit Manganese 50.0 447.0 South Africa n/a ArcelorMittal UK

51%

19%

11%

1%

18%

Copper

Gold

Nickel

Iron Ore

Other

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

March Q June Q September Q December Q

Copper

Gold

Iron Ore

Copper, Gold and Iron Ore (US$ million)

Metals: Deal Value (Dec Q 2012)

MINING DEAlS

(Decemer Quarter 2012)

Value

(US$ million)

Deals

(Number)

Copper 7,076.1 14

Gold 2,653.7 33

Nickel 1,487.0 1

Lithium 831.3 1

PGMs 550.0 3

Silver 532.9 4

Manganese 447.0 1

Iron Ore 226.8 8

Other 106.0 6

TOTAL 13,910.8 71


17/29


There are almost 3,500 companies in the internationalmining industry (see table below), and the sector had acombined market capitalisation of US$2,543 billion atthe end of the December quarter.

The majority of these companies are small (1,756companies had a market capitalisation of under US$10million at the end of December; see later), and only 20%of the companies (681) had an end-year marketcapitalisation of over US$100 million.

These largest companies accounted for 98% of theindustrys overall market capitalisation, and 76% of themoney raised during the December quarter. Despitetaking the lions share, the financing by these largestcompanies represented just 0.2% of their collective

market capitalisation.In contrast, the smallest companies in the industry

(50% of the total) raised less than 3% of the totalfinancing in the last quarter, equivalent to justUS$102,000 for each company. Nevertheless, thisfunding for the quarter was equivalent to 3% of thecollective end-year market capitalisation of thesmallest companies.

With funding scarce, many of these smaller (normallyexploration) companies have entered a period ofdormancy while they ride out the current weaknessin debt and equity markets. The situation remainsespecially difficult for those with little prospect of

early cash flow.Even those companies with metals production havebeen battered by investors perceptions of disappointingrevenue as metals prices fall, narrowing margins as costscontinue to rise, and rising operating risk as socialtension rise.

At least, and at last, there are indications of easiermoney for the industry, with funds raised by miningcompanies rising to US$6.8 billion in the quarter toend-December, compared with US$5.5 billion in theSeptember quarter. This represented a welcome increase,albeit a small one, on the US$6.6 billion raised in thefinal quarter of 2011(see table opposite).

Moreover, there has been a sharp improvement in the

funds raised for exploration. The search for mineralsaccounted for half of the total financing during thequarter just ended, compared with only 32% in theSeptember quarter and a 44% share in the year-agoperiod.

Mining companies on the Australian Stock Exchange(ASX) raised US$2.2 billion during the December quarter,with those on the Toronto Stock Exchange (TSX) andTSX-Venture Exchange (abbreviated together as TMX)

raising US$2.7 billion, and those on the London StockExchange some US$1.0 billion; all measured in terms ofthe primary exchanges for each financing. The ASXsperformance was sharply lower than the year-agoperiod, when US$3.4 billion was raised.

The relatively modest fund-raising by the largercompanies (in comparison with their size) reflects anability to utilise cash flow from operating mines (aluxury not available to the junior companies). It is alsoindicative of the larger companies substantial cashholdings at the end of the September quarter (estimatedat US$252 billion, equivalent to over 96% of the industrystotal cash holdings at that time) and also to a period ofrestrained takeover activity (see table opposite).

With the softer commodity prices, the valuation ofsmaller companies has weakened. This, in turn, hasmade it difficult to finance projects by raising equitythrough public offerings. The larger companies,meanwhile, have been quietly building up their cashholdings; we expect increased takeover interest instruggling juniors that have attractive projects.

PROPERTy PRICINGCost inflation, slowing economic growth, increasedgeopolitical risk and volatile prices have shiftedcompanies focus from growth to cost reduction, andthis has affected the number of mining-property

transactions (see table opposite).The total sales value for gold property transactionsfell to US$248.1 million in the quarter to end-December, compared with US$349.1 million in theSeptember quarter and US$361.2 million in theyear-ago period.

There was a particularly sharp fall in Australia,where IntierraRMG registered an 80% slump intransactions for gold properties, from US$192 millionin the September quarter to just US$39.2 million inthe period just ended (although this is similar to thelevel of a year ago).

Gold-property transactions in North and CentralAmerica remained at the relatively high level of

US$61.0 million, which was similar to the amountspent in the September quarter. This represents asharp increase on the modest gold-deal value ofUS$10.4 million in the final quarter of 2011.

There was a significant quarter-on-quarter increase ingold-property transactions in Asia, which accounted for60% (US$147.9 million) of all such transactions in theDecember quarter, compared with only 6% (US$19.6million) in the September quarter. The latest level issimilar to that achieved in the final quarter of 2011(US$234.5 million, representing 65% of the total).

The total sales value for copper properties slumpedin the December quarter to US$92.3 million, compared

with US$378.1 million a year ago. This overall figureincluded an 85% drop in the sales value for SouthAmerican copper properties (from US$351 million inthe final quarter of 2011 to US$53.5 million in thequarter just ended).

Mining Finnce

Hope, t lst, s mining-sector finncing rose in the december qurter,n there ws n increse lloction for explortion

Company Size(US$ million)

NumberCompanies

End-QuarterMarket Cap

(US$ million)

AverageMarket Cap

(US$ million)

100 681 2,500,929 3,672.4

TOTAL 3,486 2,542,865 729.5


18/29


There has been a similar decline in the value oftransactions for coal properties, which was justUS$23.2 million in the December quarter, comparedwith US$390.7 million in the September quarter andUS$412.3 million in the December quarter a year ago.Noteworthy was a fall in the quarterly sales value forcoal properties in Australia from US$370 million a

year ago to just US$18.2 million (although this stillrepresents the bulk of global coal deals during thepast quarter).

Australia also saw the value of iron-ore deals halvefrom the last quarter of 2011 to the last quarter of2012 (US$382.5 million to US$190.0 million).However, the price paid for insitu resources in thatcountry increased from less than USc1/dmtu (drymetric tonne unit; 1% Fe in a tonne of ore) to almostUSc13/dmtu. Canada registered iron-ore purchases

valued at US$4.8 million in the quarter at extremelylow prices for insitu metal.

However, summarising the price paid for metal in theground is problematic, with huge variations fromproject to project depending upon the individualcircumstances (deposit depth, geopolitical risk,availability of infrastructure, etc).

Although comparisons are invidious, the miningindustry paid an average of US$36/oz for insitu goldresources during the December quarter, with thehighest valuations being paid in Asia.

Making sense of copper valuations in the pastquarter was especially problematic, with dramaticallydifferent prices being paid in North America varying from an average of just US$12/t for insitucopper resources in Canada to an average ofUS$250/t in the US.

FUNDS RAISED CASH HOlDINGS

Funds Raised (US$ million) Cash Holdings (US$ million)

Q4, 2012 Q3, 2012 Q4, 2011 Q4, 2012 Q3, 2012 Q4, 2011

Company Size (US$ million):

100 5,137 4,066 4,497 252,277 253,514

Primary Exchange:

TSX/TSX-V 2,725 1,890 2,509 32,791 33,919

ASX 2,193 1,456 3,418 31,762 32,934

London 1,007 177 106 39,148 41,353

Other 843 2,020 521 157,860 156,322

Company Type:Explorer 3,405 1,796 2,852 11,233 13,069

Producer 3,364 3,747 3,702 250,326 251,458

TOTAL RAISED / CASH 6,768 5,542 6,553 261,559 264,527

PROPERTY PRICING (Decemer Quarter)*

GOlD COPPER IRON ORE COAl

Sales Price(US$/oz resources)

Total Sales Value(US$ million)

Sales Price(US$/t Cu resources)


Sales Price (USc/dmtu resources)



Q4,2012

Q3,2012

Q4,2011

Q4,2012

Q3,2012

Q4,2011

Q4,2012

Q3,2012

Q4,2011

Q4,2012

Q3,2012

Q4,2011

Q4,2012

Q3,2012

Q4,2011

Q4,2012

Q3,2012

Q4,2011

Q4,2012

Q3,2012

Q4,2011

Canada 37.3 18.7 16.7 44.7 62.7 10.3 12.3 3.7 58.5 17.5 0.5 22.9 0.05 4.8 39.5

Australia 40.2 39.4 38.5 39.2 192.0 37.5 12.90 0.51 190.0 382.5 18.2 181.9 370.0

USA 11.5 7.0 17.0 16.3 4.1 0.1 250.1 1.6 29.1 21.2 1.0 1.9 201.4 2.8

Mexico

Brazil 14.5 9.7 0.10 30.2

N&C America 23.3 16.9 16.7 61.0 66.8 10.4 25.7 1.9 54.3 38.8 1.4 24.9 0.05 0.26 4.8 6.9 201.4 42.3

S. America 11.6 34.8 108.0 344.0 53.5 351.1 0.10 30.2

Europe

Africa 5.6 142.5 35.8 78.8 0.15 64.4 7.4

Asia 50.0 1.9 33.1 147.9 19.6 234.5 11.7 2.2 0.67 55.1 5.0Australasia 28.2 39.4 38.5 39.2 192.0 37.5 12.90 0.51 190.0 382.5 18.2 181.9 370.0

TOTAL 35.6 11.9 39.1 248.1 349.1 361.2 46.0 1.9 227.1 92.3 1.4 378.1 1.33 0.26 0.32 249.9 6.9 477.2 23.2 390.7 412.3

* Geographical breakdown of properties sold (evaluated in terms of the total amount, and per unit of metal in the ground)


19/29


As noted earlier in this report (see p16), the 3,486companies in the mining industry had a combinedmarket capitalisation of US$2,543 billion at the end oflast year, for an average corporate valuation of someUS$730 million.

This rather bland statistic hides, however, a hugevariation in the structure of the industry. On the finaltrading day of 2012 there were just 681 miningcompanies (20% of the total) with individual marketcapitalisations of over US$100 million. Thesecompanies were valued by the market at a combinedUS$2,501 billion (for an average market capitalisationof US$3.67 billion).

At the other extreme of the market, there were

1,756 companies (half of the total) that were eachvalued at less than US$10 million. At the end of 2012there were a further 817 companies valued at US$10-49 million and 232 at US$50-100 million (the lattercompanies had an average market capitalisation ofUS$71 million).

PROjECT PIPELINELast year saw a slow-down in the hitherto fast pace ofmine development. Investment in mining projects*grew 9% in 2012 to US$735 billion, after the growth of20% in 2011 (see figure, p21). However, the totalnumber of projects in the pipeline fell 3% to under1,300 (similar to the level of 2010).

*Note: The requirement for inclusion inIntierraRMG's Raw Materials Database (RMD) arethat a project must have either an estimated mineralresource or an estimate of capital expenditure.

Several large projects have been put on hold,including BHP Billiton's US$8 billion Olympic Damexpansion in Australia, and the Prioskolskoye iron-oreand Sukhoi Log gold projects in Russia. A number ofuranium and nickel projects have also been postponed.

Figures from RMD show that the average project hasbecome more expensive. This is attributed, especially,to an increase in the geological complexity oforebodies and to falling ore grades, making them more

difficult to mine and beneficiate. There has also beenan increase in the construction of supportinginfrastructure, and greater costs associated withsecuring environmental and community agreements.

The later project stages, for both greenfield and

brownfield developments, have seen the greatestinvestment growth. This is the result of miningcompanies pushing for early production to benefitfrom the still relatively high metals prices. The early-stage exploration projects have lost out, which mightcreate pipeline problems in the future.

METaLS CHOICERMD shows that the investment market last yearcontinued to be dominated by three metals: iron ore,copper and gold. Together these metals accounted for77% of the total project investment, amounting toUS$570 billion (see chart p21).

Iron-ore prices have risen recently after a decline

caused by concern over the Chinese economy, and themetal remained the most important investment targetin 2012. Annual spending increased 14% to US$245billion, leaving iron ore accounting for 33% of theindustry's total metals investments. However, thegrowth rate has fallen sharply compared with the 33%jump in annual iron-ore investment in 2011.

The average investment on the almost 1,300projects in 2012 (slightly down on the total numberin 2011) rose 13% (on a year-on-year basis) toUS$1.2 billion.

Investment in copper projects grew 12% last year(16% in 2011), reaching US$200 billion. The number

of copper projects in the pipeline (which is similar tothose recorded in 2011) was higher than for iron ore(see figure at bottom p20). Stable production growthis forecast for the next two years.

Gold prices have remained robust during therecession but investment in gold projects is relativelylow. However, the physical number of projects remainsvery high (see figure) at 410, representing one-third ofthe total number of mining projects recorded on RMD.

The number of nickel projects fell slightly in 2012,as did the total investment (see figure, p20). Nevertheless,production of the metal remained high despite thedifficult market conditions. This is attributed to thecomplication, and cost, of suspending advanced-stage

nickel projects.

M&A: Vaue and deas announced

Specil Report: Oeriew of 2012

Lst yer sw slow-own in the pce of mine eelopment,with fewer projects in the pipeline, but increse expeniture

0

50

100

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250

300

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450

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0

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40,000

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2011 2012

Valueofdea

ls(US$million)

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M&A: Vaue of deas announced (three maor commodities)

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2011 2012

Valueofdeals(US$million)

Copper Gold Iron Ore


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REdUCEd NUMBER OF dEaLSLast year saw a sharp year-on-year drop in deal-making activity, with the total being down almost 20%in value terms compared with 2011. This decline wasdespite inclusion of the proposed merger betweenGlencore and Xstrata (see figure opposite).

Although the number of announced deals was on apar with the previous year, the scarcity of 'mega-deals(defined as being those valued at over US$1 billion)made for a significantly lower average deal value (thenotable exception is, of course, the Glencore-Xstratatie-up, which is still pending).

Copper, gold and iron ore were the most soughtafter metals, with the trio representing fully 76% of

the total deal evaluation in 2012 (excludingGlencore-Xstrata); see p21.

Australia and Canada dominated deal-making lastyear, and, in terms of the number of deals that wereannounced, they accounted for almost half of the total.China trailed behind, in third place.

While numerous, the Australian deals were smaller invalue terms in 2012, compared with the previous year.Switzerland ranked first due almost entirely toGlencore's imminent acquisition of Xstrata, althoughthere were also independent deals by both Glencoreand Xstrata.

Indeed, Switzerland, Canada and China accounted

for two thirds of the total deal-making activity lastyear (by value), and the top five countries togetheraccounted for three quarters of the total activity(see charts to right).

Notable last year was Chinas 60% drop year-on-yearin overseas deal-making. While copper, gold and ironore continued to be the focus of Chinese activity, boththe number and value of these deals declined.

leading Countries

(by Numer of Deas; 2012)

leading Countries(by Dea Vaue; 2012)

lARGEST METAlS DEAlS

Announced Status Buyer

Buyers

country Seller

Sellers

country

Share

(%) Object

Object

country Main metal

Value

(US$m)Feb Pending Glencore International Switzerland n/a 65.9 Xstrata Plc Switzerland Diversified 34,000.0

Dec Pending First Quantum Minerals Canada n/a 100.0 Inmet Mining Canada Copper 4,999.5

Aug Closed Codelco Chile Anglo American UK 25.4 Anglo American Sur Chile Copper 1,900.0

Feb Closed Rio Tinto UK BHP Billiton Australia 37.0 Richards Bay Minerals South Africa Mineral sands 1,900.0

Mar Closed Marubeni Japan Hancock Prospecting Australia 12.5 Roy Hill Iron Ore Deposit Australia Iron ore 1,526.3

Dec Pending Millhouse LLC Russia UC Rusal Russia 5.9 Norilsk Nickel Russia Nickel 1,487.0

Jan Closed Pan American Silver Canada n/a 100.0 Minefinders Canada Gold, Silver 1,470.4

Sep Closed Glencore International Switzerland n/a 18.9 Kazzinc LLP Kazakhstan Zinc 1,400.0

Jan Closed ENRC Kazakhstan First Quantum Minerals Canada 65.0 Congo Mineral Dev UK Copper 1,250.0

Sep Failed Noble Group Hong Kong n/a 100.0 Arrium Limited Australia Iron ore 1,221.0

Sep Pending B2Gold Corp Canada n/a 100.0 CGA Mining Ltd Australia Gold 1,078.3

Mar Closed Fonds Stratgique France Areva SA France 25.9 Eramet Group France Nickel, Manganese 1,004.0

26%

20%

11%5%

4%

34%

Australia

Canada

China

US

UK

Other

46%

14%

7%

5%

3%

25%Switzerland

Canada

ChinaUK

Australia

Other


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continue

ANNUAl DEAlS (by Commodity)

2012* 2011

Value(US$ mil lion) Number

Value(US$ mill ion) Number

Copper 15,033.0 50 48,307.9 50

Gold 14,035.0 142 15,229.2 124

Iron Ore 6,043.5 36 20,263.7 54

Nickel 2,804.2 10 1,381.4 14

Zinc 1,446.3 7 6,715.3 15

PGMs 1,224.9 2 598.1 6

Silver 716.8 4 456.6 10

REO 400.5 3 70.9 4

Lead 4.1 3 105.2 5

Other# 4,336.8 41 5,722.0 13

Glencore-Xstrata 34,000.0 1

TOTAL 80,045.1 299 98,850.3 295.0

* Includes the multi-commodity Glencore-Xstrata deal (listed separately), which isdue to close in 2013.

# Includes three lithium deals valued at a total of US$1.65 billion in 2012, andtwo niobium deals valued at US$3.9 billion in 2011.

DEAl SUMMARY

(by Domicie of Acquiring Company; 2012)

ValueUS$ million

Deals(Number)

Switzerland 36,590.8 11

Canada 11,514.5 59

China 5,696.1 32

UK 3,877.7 13

Australia 2,485.7 78

South Africa 2,217.2 10

Japan 1,908.7 4

Russia 1,575.1 5

USA 1,184.3 14

India 561.6 4

Brazil 312.7 2

Singapore 94.2 6

Other 12,026.5 61

TOTAL 80,045.1 299

COMMODITY RANK (by Capita Expenditure on Advanced-stage Proects; US$ miion)

2009 % 2010 % 2011 % 2012 %

Fe 127,339 27 161,606 29 215,272 32 245,346 33

Cu 123,548 27 154,552 27 178,695 26 199,789 27

Au 75,373 16 83,102 15 111,486 17 125,372 17

Ni 64,716 14 68,572 12 63,793 9 59,830 8

U 15,126 3 21,994 4 25,168 4 24,545 3

Zn,Pb 13,974 3 16,081 3 18,014 3 16,756 2

Pt,Pd 13,214 3 15,146 3 16,250 2 16,242 2

Dia 8,202 2 6,977 1 8,177 1 8,438 1

Ag 4,517 1 9,246 2 7,166 1 8,072 1

Others 19,298 4 25,056 4 31,370 5 30,163 4

Total Capex 465,307 100 562,332 100 675,391 100 734,551 100

COMMODITY RANK (by Numer of Advanced-stage Proects)

2009 % 2010 % 2011 % 2012 %

Au 371 30 386 30 401 30 410 32

Cu 243 20 246 19 248 19 245 19

Fe 169 14 188 15 196 15 198 15

Zn,Pb 99 8 104 8 102 8 87 7

Ni 98 8 93 7 90 7 77 6

U 46 4 52 4 56 4 56 4

Ag 40 3 43 3 46 3 41 3

Pt,Pd 40 3 40 3 39 3 39 3

Dia 24 2 27 2 27 2 22 2

Others 91 7 107 8 115 9 107 8

Total number 1,221 100 1,286 100 1,320 100 1,282 100


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RMD shows that the

investment market last yearcontinued to be dominated bythree metals: iron ore, copperand gold. Together thesemetals accounted for 77% ofthe total project investment,amounting to US$570 billion.

33

27

17

8

4

3

2 2

1 1

Fe

Cu

Au

Ni

Others

U

Zn,Pb

Pt,Pd

Dia

Ag

INVESTMENTS DISTRIbUTION bY METAl (%)

MINING PROjECT INVESTMENTS bY METAl (US$ MIllION)

NUMbER OF PROjECTS IN PIPElINE

0

50,000

100,000

150,000

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2011

2012

Fe Cu Au Ni Others U Zn, Pb Pt, Pd Dia Ag

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450

Fe Cu Au Ni Others U Zn, Pb Pt, Pd Dia Ag

2011

2012


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continue

SOCIaL TURBULENCELast year was not a quiet one but at least the world did

not end on December 21, as predicted by the Mayans.President Obama was re-elected in the US but there

was a change of leadership in the worlds second mostpowerful nation (China), and President Putin hasresumed control in Russia (if he ever left it). The UN,meanwhile, has been powerless to end the civil warin Syria, while Europe remains in crisis, the Chineseeconomic has slowed and unemployment remainsan issue in the Western World.

In the mining industry, there are big changesunderway in the top jobs. An early New Year casualtyhas been Tom Albanese, with the Rio Tinto boss fallingon his sword (with the mutual consent of his Board)

over the company's huge asset write-offs. AngloAmericans Cynthia Carroll had already announced herintention to leave (to be replaced by Mark Cutifani,currently head of AngloGold Ashanti), Mick Davis is setto leave Xstrata (six months after the merger withGlencore International) and, to complete the set, BHPBilliton has begun its search for a successor to MariusKloppers (although no time frame for his departure hasbeen disclosed). Back in June, Barrick Corp replaced itschief executive Aaron Regent with Jamie Sokalsky.

However, of greater long-term significance to theindustry is the social unrest that has blighted manymining economies. It does not take a crystal ball topredict that community relations will be a key issue

in 2013.Social conflict has been especially worrying in Africa

and South America. In the latter continent, there havebeen particular difficulties in Peru, where there hasbeen community unrest at, for example, NewmontMinings 51%-owned Minas Conga project inCajamarca Region.

Barrick Gold, Xstrata, Southern Copper and AngloAmerican have also seen protests against theirprojects. This has impacted on inward investment, and,according to the National Society of Mining, Petroleumand Energy (SNMPE), this years planned expenditure inPeru has slumped from a previously announced US$6

billion to US$4 billion.As a matter of urgency, the Peruvian Governmentis working on legislation that would require prior

consultation before mining development (the newlaw has been delayed, ironically, due to drawn out

consultations with indigenous communities).There has been more encouraging news from

Colombia, which has been torn by internal conflictfor decades, with the government setting itself thegoal of becoming a top producer of coal and goldby 2019. However, many of the indigenous peoples,especially in the minerals-rich region of Guamoc,are dissatisfied with the proposals. Complicatingthe picture in Colombia further are allegations thatthe rebel FARC organisation has been involved inillegal mining, and AngloGold Ashanti has beenaccused of hiring paramilitaries to relocateresidents.

Africa holds enormous promise but much remainsto be delivered. For example, progress remains slowat Vale SAs Simandou iron-ore project in Guinea,and the Brazilian company admitted in October thatdevelopment is on hold pending new regulations.

Nowhere has the continent's social conflict beenmore pronounced than in South Africa. This came toa head with violent clashes in September at LonminsWest Marikana platinum mine (after six weeks ofunofficial strikes) which led to 45 miners being shotdead by police.

The unrest spread to the country's other mines,involving 85,000 employees, before the end of thethird quarter. In October, Anglo American Platinum

dismissed 12,000 striking workers at theRustenburg mine.

It is not only in South America and Africa wherethere has been unrest. China has also sufferedprotests, predominantly centred on environmentalcomplaints at coal mines.

Against this backdrop, the Chinese government hasmoved to increase environmental protection. China'sState Council announced in November that all majorprojects will have to undergo a social-risk assessment.All government agencies have been ordered to makeEnvironmental Impact Assessments.

Even the Nordic countries have not been spared

from social unrest, with protests in both Swedenand Finland from local communities againstmining projects.

Ten-year metas prices (US$/t)Ten-year precious prices (US$/oz)

2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

10,000

20,000

30,000

40,000

50,000

60,000

0

2,000

4,000

6,000

8,000

10,000

12,000NickelTin

Alumini um (right scal e)Copper (right scale)

Lead (right scale)Zinc (right scale)

05101520253035404550

0

500

1,000

1,500

2,000

2,500 Gold

PlatinumPalladium

Silver (right scale)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



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CORRUPTION: INCREaSEd OPERaTIONaL RISkTransparency International has confirmed that miningremains one of the most corrupt global industries,and two surveys undertaken last year show a clear gapbetween mining companies perception of corruptionand their preparedness to heed the risk.

Moreover, according to a recent survey onbribery and corruption by Deloitte, nearly half ofthe companies operating in high-risk offshorejurisdictions have never conducted an assessmenton corruption risk. Some 40% of the respondents saidthey were "not concerned" with the risks associatedwith non-compliance.

The same finding was made by Ernst & Young in

its 11th Global Fraud Survey, where 42% of theresponding companies never, or very infrequently,conduct fraud and corruption risk assessments (postproject due-diligence).

According to World Economic Forum's latest GlobalRisks Report, corruption is perceived as one of themost important geopolitical risks. It is also perceivedas one of the most interconnected risks; being linkedto global governance failure and major systemicfinancial failure.

Corruption, and exposure to corruption, is also themost important factor in an assessment of operatingrisk. This can be demonstrated by comparing five high

operational-risk countries with TransparencyInternationals Corruption Perceptions Index (CPI);see table.

As with political risk, the national influence onoperational risk runs from insignificant (eg Norwayand New Zealand) to extreme (eg the Kandahar regionin Afghanistan).

CORPORaTE advICEWith regard to risk assessment, Transparency

International advises mining companies to monitor,evaluate and report on a regular basis.

Companies are also advised to: Publish the findings (transparency is the first line

of defence against corruption). Commit to a Code of Conduct (on both an internal

and external basis), and provide employees withpractical guidance.

Introduce third party due diligence that is independent. Build strong relationships with government and

other stakeholders.

Meanwhile, companies are facing burgeoning globalanti-corruption regulations (eg the Dodd-Frank Act inthe US that relates to the disclosure of payments byresource companies).

Mining companies are clearly facing sharply highercorruption-risk assessments, especially as they moveinto ever more unstable territories.

Five High Risk* Countries (NRI ranking)

Country CPI

Congo DR 160Guinea 154Papua New Guinea 150Venezuela 165Zimbabwe 163

* The operating environment presents persistent and serious challenges forbusiness. For example: Corruption is endemic across all levels of officialdom,there are significant infrastructure deficiencies or regulations are onerous andtheir implementation is capricious.

Sources: Control Risks, Transparency International

HEAT MAP


25/29


Specil Report: Mining Roylties n Txtion

There is blncing ct, from the perspectie of both the inesting compnyn the host country, when negotiting the terms of mine eelopment

Mining is a global business and there is competitionbetween the various mineral-prospective countries.As a result, investments flows are not only influencedby the geological potential of the host nation but bythe risks associated with the project. This includesnot only national taxes and legislation but also localcommunity attitudes and levels of corruption, etc.

Given the long-term nature of a mining project andthe size of initial expenditure (and which cannot laterbe moved), the stability of the fiscal regime is ofutmost importance.

From a company's perspective, a higher politicalrisk can be off-set by an increased likelihood of findingworld-class deposits. For that reason, a country with

a long history of stable mining conditions is, of course,a more attractive target for foreign direct investments(FDI) than a country with a limited (or poor) track record.

FDI into relatively stable countries, such as Canadaand the US, are at present much higher than what isto be expected given the existing size of the localmining industries.

Also, Latin America remains much more attractivefor mine development than Africa, in spite of thehigher probability of finding a new deposit in the lattercontinent. This is simply because much less explorationhas been made in Africa, and the perceived risks forinternational investors are higher. There are also other

factors involved, with higher levels of corruption inAfrica, and the scarcity of suitable infrastructure.Moreover, the political stability, tax and royalty levels,and free-carried state ownership are a disincentivecompared with many Latin American countries.

TaXaTION MEaSURESAll things being equal, any country should attract

mining investment that is proportional to its mineralprospectivity. If this investment is less, it impliesfaults in the investment climate, such as an excessivetax regime. However, if the investment is greater thanwould otherwise be expected, it suggests that theinvestment conditions may be overly generous.

From a national perspective, there has to be abalance between the income (direct and indirect)arising from mining, and the value of the metalsextracted. From the company's perspective, thebalance is between the potential rewards and the risksassociated with the investment.

In recent years, governments have been re-examining their arrangements with mining companies,and have sought to increase the revenues they receivefor the extraction of their natural resources.

This has led to three different trends inmining taxation:

1. Regions with an already large share of the

mining market have sought to increasetaxation on natural resources (Australiabeing a prime example).

2. Stable regions, which do not have a large marketshare in mining, are moving towards marginalincreases in resource taxation (eg South Africa).

3. Mainly developing countries, unable to offera reliably-stable busin

Intierra State of the Market Mining and Finance Report Q1 2013

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