1. Understanding and Valuating Exploration Companies 24 May 2007 Shane Hunter

2. 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

3. The mining value chain Source: www.bullion.org.za

4. 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

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

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

7. Target Generation Source: Pan African Resources

8. Primary Exploration Source: Pan African Resources

9. Primary Exploration Source: Deep Yellow

10. Primary Exploration

11. Source: St. Jude Resources

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

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

14. 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...

15. Secondary Exploration Source: Adamus Resources

16. Secondary Exploration Source: Adamus Resources

17. Secondary Exploration Source: Pan African Resources

18. Business Planning Mine Plan

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

20. 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.

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

22. Valuation 1. - Enterprise value per oz in the ground

23. EV/Measured & Indicated resources

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

25. 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)

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

27. 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 Year012345678910 Discount rate 10% Discount factor0.9090.8260.7510.6830.6210.5640.5130.4670.4240.386.. 20 year life...

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

29. 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 01234567... Discount rate15% Discount factor0.8700.7560.6580.5720.497.. 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...

30. Valuation 2. (Reserve) - NPV Model based on Feasibility Studies DCF Value: $, Rands Mine ABC -1 2 3

31. Value 2. NPV Model based on Feasibility Studies

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

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

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

35. Physical location of resources Lease area Drilling takes place

36. 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 Resource31.92.82.851.99 Measured4.52.80.410.28 Indicated6.22.40.480.33 Inferred21.22.91.971.38 As at 31 Dec. 2006 Inferred Resources - Physical location

37. 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 122.82.72.011.41 Measured4.52.80.410.28 Indicated6.22.40.480.33 Inferred12.12.91.130.79 Area 25.42.70.470.33 Inferred5.42.70.470.33 Area 33.73.10.370.26 Inferred3.73.10.370.26 70% ownership As at 31 Dec. 2006 Inferred Resources - Physical location

38. value? no value some value Measured Lease area InferredIndicated Inferred Area 1 Area 2 Area 3 As at 31 March. 2007 Indicated Inferred Resources - Physical location Valuations will change as more information is released to the market...

39. 2007: Exploration expenditure (R millions) Exploration planning (10,000 metres)

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

41. 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

42. 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. 2007 Indicat ed

43. Questions?