Johannesburg Branch SAIMM

ROGER DIXON CHAIRPERSON SSC

SAMREC/SAMVAL COMMITTEE

17 SEPTEMBER 2009

The South African Museum of Military History

Agenda

• Brief introduction to regulatory codes in SA

• Principles – competent person/valuator

• Current operating environment

• Some challenges

• International Activities

SAMREC CODE

THE SOUTH AFRICAN CODE FOR THE REPORTING OF EXPLORATION RESULTS, MINERAL RESOURCES AND MINERAL RESERVES

• FIRST PUBLISHED MARCH 2000

• 2ND EDITION JULY 2007

MINIMUM STANDARDS FOR PUBLIC REPORTING

SAMVAL CODE

THE SOUTH AFRICAN CODE FOR THE REPORTING OF MINERAL ASSET VALUATION

• Mineral Asset - Any right to explore or mine (or both) that has been granted or entity holding such property or the securities of such an entity.

• Published April 2008

The Code sets out a required minimum standard for the Public Reporting of Mineral Asset Valuation.

Public Report

• Reports prepared for investors or potential investors

• Annual Reports

• Quarterly Reports

• Info Memos

• Websites

• Public Presentations

• SENS

PRINCIPLES

Materiality: Relevant information for a reasoned decision.

Transparency: The reader of a Public Report must be provided with sufficient information, the presentation of which is clear and unambiguous, to understand the report and not be misled.

Competency: The Public Report is based on work that is the responsibility of suitably qualified and experienced persons who are subject to an enforceable Professional Code of Ethics.

Framework for Reporting

EXPLORATIONRESULTS

MINERAL MINERALIncreasing RESOURCES RESERVES

level of Reported as in situ Reported as

geoscientif ic mineralisation mineable production

know ledge estimates estimates

and

confidence INFERRED

INDICATED PROBABLE

MEASURED PROVED

Consideration of mining, metallurgical, economic, marketing, legal,

environmental, social and governmental factors

Figure 1 Relationship between Exploration Results, Mineral Resources and Mineral Reserves

(the 'modifying factors')

Competent Person/Valuator

1. Membership of Professional

Organization with enforceable Code

of Ethics

SAIMM SAICA

GSSA

SACNASP

ECSA

PLATO

Competent Person/Valuator

2. Competent Person

Minimum 5 (five) years experience

relevant to style of mineralization

and type of deposit and to the

activity undertaken

2.Competent Valuator

Sufficient relevant experience

Competent

Person/Valuator

Team approach allowed but

leader signs off.

NB. Satisfied in own mind able to

face peers and demonstrate

competence in the commodity,

type of deposit and situation.

Disciplinary Procedure

• Complaints in writing to SSC

• Ethics Committee decides

whether complaint is valid

• Referred to Professional

Organization for discipline

ROPOS

Recognised Overseas Professional

Organization

• Reciprocity

• Securities Exchange

JSE/SSC ROPOS

Australasian Institute of Mining and

Metallurgy

AusIMM

Australian Institute of Geoscientists AIG

Canadian Council of Professional

Geoscientists

CCPG

European Federation of Geologists EFG

The Geological Society GS

Institute of Geologists of Ireland IGI

Institute of Materials Minerals and

Mining

IMMM

Mining and Metallurgical Society of

America

MMSA

Society for Mining Metallurgy and

Exploration

SME

Compliance Monitoring

• Codes incorporated into JSE

Listing Requirements – Section 12

• Strong links with JSE

• Readers Panel, experts in their

field

• Remunerated by JSE

Prevention better than cure!

SAMREC AND SAMVAL CODES

Commodity Boom-Financial Crisis

The operating environment

Market Cap Resources

Top ten September 2009

Pre -feasibility

SAMCODE – Pre-feasibility Study

• A comprehensive study of a range of options for the viability of a mineral project that has advanced to a stage where the preferred mining method, in the case of underground or the pit configuration in the case of an open pit has been established and where an effective method of mineral processing has been determined.

• It includes a financial analysis based on realistically assumed assumptions of technical, engineering, operating, economic factors and the evaluation of the other relevant factors

• Which are sufficient for a Competent Person, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve.

• The overall confidence of the study should be stated. A Pre-feasibility Study is at a lower confidence level than a Feasibility Study

Feasibility Study

• A comprehensive design and costing study of the selected option for the development of a mineral project.

• Realistically assumed geological, mining, metallurgical, economic, marketing, legal, environmental, social, governmental, engineering, operational and all the other modifying factors,

• Demonstrate at the time of reporting that extraction is

reasonably justified (economically mineable) and

• the factors reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project.

• The overall confidence of the study should be stated.

Reasonable?

• Commodity price volatility

• Fluctuating exchange rates

• Rampant escalation in selected

areas

• Lack of technical capacity

• Cost over-runs

• Lack of infrastructure capacity

• Pressure from clients

Reasonable

What the majority of people consider to be 'reasonable' is that about which there is agreement, if not among all, at least among a substantial number of people; 'reasonable' for most people, has nothing to do with reason, but with consensus.“

[Erich Fromm]

Price volatility - platinum

Price volatility - copper

Price volatility - uranium

Cost over-runs

"The huge Mmamabula project is in trouble," she said, referring to rising construction, equipment and project management costs."It was estimated originally at 6 (billion dollars) two years ago, it went up to 9 and now is at $16 billion.“

Source: mineweb.com

Project schedule

Froneman stepped down as CEO at that stage, to be replaced on an interim basis by Jean Nortier, who was confirmed this week as CEO, just as Dominion's "pre-commercial" uranium oxide output projection for this year was again cut, this time to 0.32m lbs, some 89% less than Froneman's original projection of 2.8m lbs.

Source: mineweb.com

Project over-runs

Mmamabula energy project – initial estimate US$6bn

Revised estimate US$16bn

Anvil Mining project – initial estimate US$257m

Revised estimate US$380m

Galore Creek project – initial estimate US$2.2bn

Revised estimate US$5bn

LITIGATION!A capex blow-out, which more than doubled the estimated project cost of NovaGold Resources' Galore Creek project, is the subject of a shareholder class action lawsuit filed against the Vancouver junior gold miner. The lawsuit was filed in the U.S. District Court for the Southern District of New York on behalf of plaintiff Rudolph T. Textor and all purchasers of securities of NovaGold Resources from October 25, 2006, through November 23, 2007.

Source: mineweb.com

Litigation

• Contrary to the Defendants' representations, the Company had failed to make reasonable estimates as to capital expenditures necessary to mine Galore Creek, which were underestimated by more than $3 billion.

• The development of Galore Creek was not proceeding on schedule and was a year and a half to two years behind schedule;

• The results of the Hatch Feasibility Study announced on October 25, 2006 materially understated the capital costs and construction schedule required to successfully mine the Galore Creek site;

• Defendants knew but failed to disclose that the Hatch Feasibility Study was not a ‘Bankable Feasibility Study.'

Solution

• Compliant terminology

• Ensure all modifying factors are

covered

• Develop standards for levels of

study

• Confidence levels?

Above all TRANSPARENCY!!

www.crirsco.com

CRIRSCO

CRIRSCO MEMBERS Australia: JORC Code

Canada: NI 43-101 + CIM Standards

Chile: The Code for the certification of Exploration Prospects Mineral Resources and Ore

Reserves

Europe and UK: PERC Code, The Reporting Code

South Africa: SAMREC Code

United States: SME Guide for Reporting Exploration Information, Mineral Resources and Mineral Reserves. SEC Industry Guide 7

Disconnects

• UKLA and CESA not linked to Professional Body

– Recognize several Reporting Codes

• SEC not linked

– Have moved on oil and gas

– Resources not recognized

– Competent Person not recognized

– Prescriptive on Prices

CRIRSCO

Potential new Members:

China

Indonesia

Mongolia

Peru

Philippines

Russia

CRIRSCO

CRIRSCO

• International reporting template

• Harmonising reporting systems for both solid minerals and hydrocarbons.

• Acceptance by IASB of CRIRSCO definitions.

• UNECE Classification Framework

Revision expected October 2009

WEBSITE

ALL SLIDES

WWW.SAMCODE.CO.ZA