1. J. Mverecha Financing Mining Projects Risks and Opportunities

2. Contents Introduction Opportunities in the Mining Sector Mining Sector and the Broader Economy Mining sector Financing Requirements Financing Mining Sector Projects Concluding Remarks

3. Introduction Mining is a global business

4. For Countries such as: China, Australia, RSA, Russia, Peru, Chile, Ghana, Tanzania Mining ha been catalytic for growth In Peru, the target is for $14bn investment in mining – Community Development initiatives – Environmental issues – Contribution to Fiscus Introduction

5.  The mining sector is increasingly, evolving into a dominant sector in the economy: Accounted for 2/3 of exports in 2010 Will account for over 50% of exports in 2011 Accounts for about 20% of Nominal GDP Mining is the fastest growing sector Not Homogeneous Large well capitalized mines Medium sized mines Small and artisinal mining Introduction

6.  Zimbabwe has over 40 different minerals  Major Minerals are: Platinum (45%) Gold (24%) Diamonds (14%) Chrome Coal Nickel Mining Financial Requirements

7. A historical Overview The Mining sector output declined progressively over since 1999, culminating in the hyperinflation Only 3 mines were operating by December 1998 (most had closed) Since 2009, STERP and new measures Mining has rebounded strongly Growth also reflects the low base

8. GOLD PRODUCTION Kilograms 1980-2009 Fine Kilograms

9. PLATINUM PRODUCTION:1990-2009

10. Ferrochrome 1990 -2009

11. COAL PRODUCTION:1980 -2009 Volume in Tonnes

12. NICKEL PRODUCTION:1990 - 2009 Tonnes

13. IRON ORE PRODUCTION - 1980-2009 Tonnes

14. Over 90% of Deposits are Short Term 2011 Deposits Structure

15. Mining share of loans is about 5% Comm. Bank Loans & Advances

16.  Mining requires over substantial resources for capitalization: Introduction  US$3 – US$5 billion recapitalization requirements over the next 5 years.  Gold (US$1 billion)  Platinum (US$1.2 billion)  Nickel (US$110 m)  Chrome (US$118 m)  Diamonds (US$339 m)  Coal (US$225 m)

17. A complex, risky and capital intensive industry 17

18. Exploration is the Genesis TARGET GENERATION Commodity selection – market analysis, trends, demand Location – Geological Province/Country/Region/Area Entry Level – Grassroots Exploration/Joint venture/Buy in/ Strategic Alliances DESKTOP STUDIES Country Minerals Legislation Licence Application (Government Ministry of Mines/Minerals - Regional/Reconnaissance/Prospecting Geological Information (Geological Survey) Geophysical coverage (Airborne and ground Private and Geological Survey) Remote sensing coverage (Geological Survey: aerial photography, satellite imagery, Modelling) Previous exploration activity and research (Geological Surveys held with Government Departments) FIELDWORK Geological Mapping, Sampling and Assessment (Operators Team/Contractor Geologists, Field Technicians) Geophysics (Contractor - Airborne and Ground) Test Drilling (Contractors) FOLLOW UP Drilling – Delineation of the orebody Environmental Base line studies Impact on local social and environmental issues FEASIBILITY Ore Reserve calculations Metallurgical Testwork/Bulk Sampling 18

19. Venture Capital Project Finance Corporate Lending Funding Cycle Lower risk, lower reward High risk, high reward 19

20. Mining Development Stages

21. Mining Project Progression Claim Holder Junior explorer 21

22. Each player can add to the value chain PlayerRole Claim HolderIndividual, Artisanal miner, Government Selling or leasing rights with realist expectations given limited role in the value chain ProspectorIndividual, Mining association Understanding prospectivity &selling or leasing to junior explorersfor cash, royalty or equity Junior ExplorerSmall Corporate entity Initial exploration work to determine the scope of the ore body and the potential for industrial scale mining of a mine. Senior ExplorerMedium sized Corporate entity Advancing exploration work and developing mines for industrial scale mining MajorInternational Blue chip corporate Large Scale miners have the capital and technical expertise to commercialise ore bodies in a way which maximises the economic value of the entire ore body 22

23. Typical cost of a large scale mine over its life Gross outlay to get a mine to production up to $315m and up to 12years Exploration 3-7 years Shareholder funded Extremely high risk Cost: $10-15m Construction 2-3 years Shareholder funded Very high risk Cost: $20-200m Ramp-up 2 years Debt/Equity funded High risk Cost: $10-100m Operation 15-20 years Debt/equity funded Moderate risk Benefit: $0-100m Wind down 5 years Debt/equity funded Moderate-high risk Benefit: $0-100m Closure 3 years Equity funded Moderate-high risk Cost: $5-100m 23

24. Risks to mitigate when investing PoliticalTechnologyOre Body OperationalMarketInfrastructure ConstructionEnvironmental 24

25. Role of FDI in Financing Mining Long Term Funding is key for sustained mining sector growth Venture Capital Financing – High risk/ high return Shareholders Equity Other Long Term Sources of Funding

26. Debt/Equity Financing

28. Investors are prudent What to look for A level playing field Political Stability Property rights protection Rule of law High ethical standards Freedom to trade Financial system regulation Mobility of capital Local partnerships Skilled and industrious workforce Management teams with an established track record Why Manage the savings of normal people Regulated industry subject to strict oversight Fiduciary and legal duty to minimize risk If a project does not meet the highest standards it will not be given the greenlight 28

29. Fraser Report Assessment Benchmark risk perception measure The Fraser Institute Surveys 3,000 mining companies and institutions Responses from 670 executives The companies participating in the survey reported exploration spending of US$2.9 billion in 2009 and of US$3.6 billion in 2008. Thus, survey respondents represent 38 per cent of total global non-ferrous exploration of US$7.7 billion in 2009 and 27 per cent of US$13.2 billion in 2008 Assess how mineral endowments and public policy factors such as tax as taxation and regulation affect exploration investment The report indicates what potential investors think of risk of investing in Zimbabwe mining Source: Fraser Report 2009, Metals Economics Group 29

30. Gold Production ( Actual & Forecasts )

31. Platinum: Actual & Forecasts:2000-2015

32. Ferrochrome: Baseline Vs Capex: 2000 - 2015

33. Coal: Baseline Vs Capex:2000 - 2015

34. Nickel Baseline Vs Capex:2000 - 2015

35. THANK YOU