Understanding and Valuating Exploration Companies 24 May 2007 Shane Hunter

The mining value chain – where exploration fits in. –What information do we get? –What can we value as we move along the value chain? Valuation methods General valuation issues Summary Agenda

The mining value chain Source:

The (simplified) Mining Value Chain Target Generation Planning Historical data Geophysical Geology = A target area Primary Exploration Geochemical Geophysical Trenching Drilling = Metal values Mine Construction Engineering design Build the plant Build the mine Mine planning details Secondary Exploration Drilling Geological modeling Metallurgical testing Basic mining methods (Scoping study) = Mineral Resource Operate the mine Business Planning (Feasibility study) In-fill drilling Geological modeling Metallurgical testing Mine planning = Mineral Reserve

Target Generation Location, location, location Source: Wesizwe Sun City Wesizwe AngloPlats JV Wesizwe

Target Generation Location, location, location Source: Pan African Resources

Target Generation Source: Pan African Resources

Primary Exploration Source: Pan African Resources

Primary Exploration Source: Deep Yellow

Primary Exploration

Source: St. Jude Resources

Primary Exploration Source: St. Jude Resources “We expect a SAMREC compliant Resource Statement to be released by.....”

Primary Exploration But.... They only achieved 1!

Primary Exploration Strike Dip Width Volume of the ore-body... The ore-body is open along strike and at depth... The ore-body is not closed off along strike or at depth...

Secondary Exploration Source: Adamus Resources

Secondary Exploration Source: Adamus Resources

Secondary Exploration Source: Pan African Resources

Business Planning Mine Plan

Business Planning Reserve Statement Plant recovery factor ~ 80 to 95% Source: SXR UraniumOne

Value along the Value Chain Target Generation Planning Historical data Geophysical Geology = A target area Primary Exploration Geochemical Geophysical Trenching Drilling = Metal values Mine Construction Engineering design Build the plant Build the mine Mine planning details Secondary Exploration In-fill drilling Geological modeling Metallurgical recovery Basic mining methods = Mineral Resource Operate the mine Business Planning In-fill drilling Geological modeling Metallurgical testing Mine planning = Mineral Reserve Speculation Valuation 1. Valuation 2.

Valuation 1. - Enterprise value per oz in the ground Enterprise value = Market cap + debt - cash

Valuation 1. - Enterprise value per oz in the ground

EV/Measured & Indicated resources

Value 1. Enterprise value per M&I oz in the ground - Peer groups

This method DOES NOT directly consider; Grade of the ore-body The cost of mining (shallow, deep, open pit, u/g?) The capital cost needed to build the mine When will mining take place, i.e. the time value of money Any royalty payable Some companies will various deposits/resources Value 1. Enterprise value per oz in the ground ??? The EV/oz method also assumes; All the resource ozs will be mined (or are worth something)

Valuation 1. Underground resource Source: First Uranium Underground resource: ~ 6 million ozs

Use site specific factors or industry standards... Underground example$ Nominal Gold price per oz650 Royalty (1.5%)10 Cash cost per oz357 Capital cost per oz107 Operating margin per oz177 x average discount factor0.240 Value per oz in the ground42 Cash cost per ton (R/t) 650 Cash cost per ton ($/t) 93 Recovered grade (g/t) 8.1 Recovered grade (oz/t) 0.26 Cash cost per oz ($/oz) 357 Capital cost (R million)4,500 Capital cost ($ million) 643 Ozs to be mined (millions)6.0 Capital cost per oz ($/oz)107 Underground resource: ~ 6 million ozs Year Discount rate 10% Discount factor year life...

Valuation 1. Shallow Resource Shallow resource: ~ 1.5 million ozs

Use site specific factors or industry standards... Open pit example$ Nominal Gold price per oz650 Royalty (1.5%)10 Cash cost per oz287 Capital cost per oz80 Operating margin per oz273 x average discount factor0.379 Value per oz in the ground104 Year Discount rate15% Discount factor and so on Cash cost per tonne ($/t)24 Recovered grade (g/t)2.6 Recovered grade (oz/t)0.08 Cash cost per oz ($/oz)287 Capital cost ($ milllion)120 Ozs to be mined (millions)1,5 Capital cost per oz ($/oz)80 Shallow resource: ~ 1.5 million ozs 10 year life...

Valuation 2. (Reserve) - NPV Model based on Feasibility Studies DCF Value: $, Rands Mine ABC

Value 2. NPV Model based on Feasibility Studies

Inferred Resources - Physical location Source: First Uranium Indicated resource inferred resource

Inferred Resources - Physical location Platinum example... reef Normal reef Reef area Fault loss reef fault Source: Wesizwe

Lease area Target areas Inferred Resources - Physical location Greenstone type deposit or open pit

Physical location of resources Lease area Drilling takes place

no value some value Measured Lease area InferredIndicated Inferred Area 1 Area 2 Area 3 Category Tonnes (million) In-situ grade (g/t) Contained gold ozs Attributable ozs Total Resource Measured Indicated Inferred As at 31 Dec Inferred Resources - Physical location

no value some value Measured Lease area InferredIndicated Inferred Area 1 Area 2 Area 3 Category Tonnes (million) In-situ grade (g/t) Contained gold ozs Attributable ozs Area Measured Indicated Inferred Area Inferred Area Inferred % ownership As at 31 Dec Inferred Resources - Physical location

value? no value some value Measured Lease area InferredIndicated Inferred Area 1 Area 2 Area 3 As at 31 March Indicated Inferred Resources - Physical location Valuations will change as more information is released to the market...

2007: Exploration expenditure (R millions) Exploration planning (10,000 metres)

Company valuation The technical value +... Supply and demand of the shares Commodity price outlook Market issues government policies/legislation the economy

Important Value Issues What is the out-look on the commodity price? Conversion of prospecting to mining rights, Is the company in a JV with a major? The major will supply the capital in return for ownership in the operation How risky is the location (country) of the project Who are the management team Potential mergers, acquisitions

Summary Target Generation Planning Historical data Remote sensing Geological = A target area Primary Exploration Geochemical Geophysical Trenching Drilling = Metal values Mine Construction Engineering design Build the plant Build the mine Mine planning details Secondary Exploration In-fill drilling Geological modeling Metallurgical testing Basic mining methods (Pre-feasibility study) = Mineral Resource Operate the mine Business Planning (Feasibility study) In-fill drilling Geological modeling Metallurgical testing Mine planning = Mineral Reserve Date: February 2007 Underground Mine$ Nominal Gold price per oz650 Royalty (1.5%)10 Cash cost per oz357 Capital cost per oz105 Operating margin per oz179 x average discount factor0.237 Value per oz in the ground42 value? no value some value Measur ed Lease area Inferre d Indicat ed Inferre d Are a 1 Are a 2 Are a 3 As at 31 March Indicat ed

Questions?