1 C u r r e n t D e v e l o p m e n t s MINING Surviving the Global Financial Crisis in the Mining Sector Session 3 – Understanding the Key Indicators of Your Company’s Ability to Weather the Storm January 13, 2009

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 2 Agenda Introductions Broader industry and recent trends KPMG mining executive survey Cash is king Review of capital projects Flight to quality projects Mergers and acquisitions Know your partners Recent mining transactions Forecasting and scenario planning Stakeholder discussions

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 3 The broader industry and recent events Surviving the short-term problems will be trickier for some. Base metals have been more negatively impacted than precious metals. Junior exploration and development companies will be starved of capital. High cost producers in an environment of declining prices. There is a contrast between the short-term and long-term outlook. Many companies have halted production and have begun to defer investment. Assuming companies can survive the next 18 to 24 months, the industry is in the middle of a commodities super-cycle driven by demand from emerging economies. Companies that display best practices will emerge from this downturn prepared to capitalize on upcoming opportunities. A significant reason for optimism is that the market fundamentals of supply and demand still line up very well for the mining industry.

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 4 KPMG Canadian mining executive survey KPMG’s 2008 Mining Executive Forum asked attending executives to rate the challenges facing mining companies. The results showed the following: –The survey was compiled in September We feel that, given the current economic environment, executives may have given higher priority to the ability to raise capital. Source: KPMG 2008 Mining Executive Forum in Review Note:KPMG is aware that general economic and business conditions have declined sharply since the above results were collected. KPMG believes that some executives may have answered KPMG’s survey questions differently in light of current market conditions.

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 5 Cash is king The strength of a company’s balance sheet can be measured by management’s ability to preserve cash. Some considerations include: Currency to use for operations – local currency or US dollars Hedging strategies for foreign exchange and interest rates Working capital management – collect customer payments quicker, stretch suppliers and minimize inventory Minimize commitments, renegotiate contracts and actively defer potential contingent liabilities beyond the short-term Opportunities to consolidate debt at lower interest rates Refinance or reposition parts of the company for sale

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 6 Review of capital projects Mining companies have to revisit projects that made sense when commodity prices were high because they may not merit the same level of funding. Different ways of evaluating projects could be appropriate such as a pay-back method instead of IRR. Assumptions made when project plans were developed should be updated for potential changes in fuel costs, labour and equipment. A company’s cash flow forecast becomes important in evaluating short-term versus long-term projects.

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 7 Flight to quality projects Companies are more likely to obtain financing for higher quality projects. High-cost and high-risk projects are being temporarily suspended or put on long-term care and maintenance. Mining investors are showing a bias toward companies that operate lower-risk projects in lower-risk areas of the world. Some countries such as China and Peru are creating mining friendly policies. Others, such as Venezuela, are pursuing policies of resource nationalization. Quality is impacted by other factors: Lack of effective rail, power, port and other infrastructure to streamline operations Regulatory environment, permitting, political stability, tax environment

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 8 Mergers and acquisitions (1) The mining industry will continue to see high or higher levels of M&A activity, but for different reasons. In the last five years, acquisition strategies focused on: Large companies becoming larger, more stable through acquisition Larger companies were more attractive to shareholders and financiers Larger companies were better able to launch large-scale projects A new tier of “super major” companies (> $100 billion market cap) was created. State-owned mining companies from Brazil and China had a significant influence in restructuring the industry.

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 9 Mergers and acquisitions (2) Stocks measured by the Toronto Stock Exchange’s S&P/TSX global mining index were down 40% for 2008, with small players bearing the brunt of the decline. In the current economic environment there is even more pressure on mergers and acquisitions. Gold companies and base metal companies with large projects in production continue to generate cash flow. Middle-tier companies with one or two projects run the risk of being driven into negative cash flow by cost increases. Junior exploration and development companies, with no revenue, may face difficulties accessing equity or debt financing. To avoid bankruptcy, middle-tier and junior exploration and development companies may need to arrange strategic mergers or other arrangements to raise funds and reduce costs.

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 10 Know your partners Recent announcements by mining companies of strategic partnerships and M&A activity has boosted these company’s share price. However, companies must assess the risk of new partners to the ownership and management profile. Sources of funding could come from non-traditional sources such as Russia, Japan and China.

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 11 Recent mining transactions

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 12 Forecasting and scenario planning Management of cash flows is becoming more important: the ability to accurately forecast 18 to 24 months into the future identify funding shortfalls well in advance build flexibility into the forecasting process through scenario planning run cash flow forecasts for each site and jurisdiction, be wary of consolidated forecasts consider the tax implications of repatriating cash to the home country consider the implications of your corporate structure – the lack of tax treaties between countries and the impact of possible withholding taxes

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 13 Stakeholder discussions It is increasingly important to keep the various stakeholders informed and limit surprises. Stakeholders include local communities, NGOs, environmental advocates and lenders. Project suspensions can create new issues where good relations with stakeholders can be a benefit to mining companies.

© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 14 Presenters contact details Lee Hodgkinson KPMG LLP Partner, Assurance Matt Tedford KPMG LLP Partner, Transaction Advisory