Exploration Valuation Dean Carville 6 December 2012

Index 1.Valuation using exploration methods. 2.Valuation of exploration assets 3.Valuations 4.Valuation methods 5.Transactions database 6.Competitors 7.Valuation reports 8.DCF / expected value 2

Index cont 9.Past expenditure or MEE method 10.Comparable transactions 11.Yardstick values 12.Geoscience factor 13.SRK geological risk method 14.JV terms 15.Tenements 3

Valuation using exploration methods Properties: −With no Mineral Resources −With Mineral Resources but no existing operation, study or analogy to allow DCF valuation −With an existing operation or study to allow DCF valuation but with exploration value beyond Mineral Resources valued by DCF

Valuation of exploration methods Value of the mineral property as it is now reflecting prospectivity, but not valuing exploration potential or future value A range of 5% to 10% of total value is provided in Valmin as a guide to materiality Technical value but methods used to determine primary value can in themselves involve market forces (eg yardsticks) Implicit in fair market value is an assumption that there is competition amongst buyers and a demand for the asset being assessed. For a company in receivership this is often not the case.

Valuation of exploration methods The choice of method is the responsibility of the valuer (valuator in Canada) but regulators have opinions Only in exceptional circumstances may a specialist who is not a competent geologist with appropriate exploration experience carry out a technical assessment of exploration areas Any valuation of an exploration property rests almost entirely on the geological evaluation not on numerical manipulations Meet obligations under the Valmin Code Care needs to be taken with JORC Code/CIM Standards responsibilities (Competent Person for reserves, resources and exploration targets)

Valuation of exploration methods Some exploration areas may not have a technical value Tenements under application should be discounted Option to purchase: unless the agreement has been exercised and full payment effected, the tenement is generally of no value to the option holder Royalties have no value if not in production Can’t knock up an exploration valuation in an afternoon! Need to decide materiality early on and request appropriate information

Valuations Use more than one method A range of values should be stated reflecting any uncertainties in the data and assumptions The range should not be so wide as to render the valuation meaningless A preferred value should be identified (Valmin Code) AMC tends to take the mid point Lawrence: accept one of the specific generated values rather than the average

Valuation methods Actual Transactions Past Effective Expenditure Yardsticks Comparable Transactions Joint Venture Terms DCF/Expected Value Geoscience Factor SRK Geological Risk

Transactions database A record of transactions not solutions Searchable Miningnews.net North American Headlines Asia Miner Intierra ? Disclosurenet ?

Transactions database

Competitors SRK Snowdens Coffeys Golders Optiro Ravensgate Independents

Valuation reports Include all information reasonably required and expected by shareholders and investors to make an informed assessment Materiality and transparency are over-riding considerations but aim for maximum rather than minimum disclosure The potential investor needs to be confident that all of the relevant issues have been reviewed by a competent person, can understand the conclusions, material risk factors and the summary of valuation.

DCF / Expected value Inferred Resource as addition to Measured/Indicated Resource production schedule Exploration possibility (not target) as addition to Measured/Indicated Resource production schedule Resources in production schedule (Expected Value) Risk-weight values of Inferred Resources and exploration possibilities CIMVAL: Inferred Resources should not be used if they account for all or are a dominant part of total mineral resources. Use must be justified, treated for substantially higher risk or uncertainty, only used if mineral reserves are present. Potential resources, etc cannot be used ASIC’s comments

Actual transaction Reasonably recent transaction on the target property

Past expenditure or Multiple of Exploration Expenditure (MEE) method Effective exploration expenditure that has already been incurred on the project Only consider recent expenditure (large historic expenditure may not be relevant) Apply a multiple Prospectivity Enhancement Multiple (“PEM”) that reflects how the exploration expenditure has enhanced or depleted the value of the property Some consider budgeted future expenditure. AMC’s view is that this is not valid

Past expenditure method AMC practice has been to use a range of 0.5 to 3.0: 0.5 – 1.0results have generally been fairly negative 1.0 – 2.0most of the effective expenditure has been useful and that it has produced some good quantifiable results 2.0 – 3.0excellent results indicative of the likelihood of delineating a resource in the near future Note Lawrence uses PEMs up to 5!

Comparable transactions Reasonably recent transactions: older transactions might be in boom or bust Same commodity mix Same general region Similar size or status of the project Similar status in the progress from conceptual exploration to feasibility. Convert to $/unit area

Yardstick values Not “in ground value” Mainly used for gold when a transaction for a project with a resource or a reserve $/unit metal or $/unit metal as a percentage of metal price at the transaction date Yardsticks of difficult commodities can be difficult (e.g. rare earths) Need to consider deposit types e.g. iron ore CID, magnetite, hematite Discount Inferred Resources (?> 1/3 to 1/2 of Measured or Indicated)

Geoscience factor aka Kilburn, Geoscience Matrix; developed in Canada semi-quantitative method for early stage exploration projects each tenement or project has a Basic Acquisition cost (“BAC”) multiples applied based on favourable geology, geophysics, geochemistry, presence of mineralisation on the property or in the near vicinity not widely used in Australia and where I have seen it, it has returned surprisingly high values converts subjective opinion into numeric engineering in Canada: “should not be used in isolation from other methods”; BCSC and VSE don’t approve because of their “subjective nature”! (1995 comment)

SRK geological risk method A probabilistic method based on: −Exploration stage: the position of the exploration project on the pathway to discovery −Probability of the project proceeding to the next exploration stage −Cost of proceeding to the next exploration stage −Threshold value of the exploration target (NPV or yardstick value of the target resource) EV=(TV x P) – C −Expected Value, Target Value, Probability, Cost −Probabilities and costs of achieving next exploration stage based on study in Laverton area

JV terms The farminor is placing a monetary value on the farminee’s interest at the time the deal is done: the deemed expenditure ($V) Where $E is the farmin expenditure and I is the interest earned Apply a probability that the farmin is taken to fruition (0.3 to 0.8) Apply a discount for the time for completion of the farmin (10% pa) Only consider first stage of multi-stage deals because deemed expenditure of farminee is different at each stage

Tenements Report on status of tenements by a specialist, unless one is provided Caveats Lonergan: the value of a mining project affected by native title claims should be discounted by at least 20% Groups of tenements (Lawrence: single tenement basis)