1. 18 Autumn in Colorado

2. Economic Evaluation and Sensitivity-Risk Analysis of Zarshuran Gold Mine Project Authors: Kazem Oraee; University of Stirling, UK Ahmad Sayadi; Tarbiat Modares University, Iran Mahdi Tavassoli; Tarbiat Modares University, Iran 2011 SME Annual Meeting Feb. 27-Mar. 2, 2011, Denver, Colorado, US

3. Outline 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 3  Introduction  Methodology  Case Study  Cost and Income Estimation  Discounted Cash Flow (DCF) Analysis  Sensitivity Analysis  Risk Analysis  Conclusions

4. Economic Evaluation of Mining Projects Case StudyIntroductionConclusion  Discounted Cash Flow- the most suitable method  Constraints  Uncertainty of internal data  Uncertainty of external data MethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 4

5. Risk Analysis of Mining Projects Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 5 Sensitivity Analysis Scenario Analysis Decision Tree Root Sum of Squares (RSS) Mont Carlo Method

6. Methodology Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 6 Develop an economic model by COMFAR software- DCF table construction. NPV, IRR and Payback are calculated Sensitivity Analysis Finding the most effective parameters on variations of NPV To determine the probability distribution of the most effective parameters To perform the probability analysis of NPV with the help of Mont Carlo simulation by @Risk software

7. Zarshuran Gold Mine Project Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 7  The most important gold deposit in Iran  Discovered by: Anglo American Company in 1995  Owned by: IMIDRO, a state-owned company

8. Zarshuran Gold Mine Project Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 8  Tonnage of inferred ore: 55 tons of Gold

9. Zarshuran Gold Mine Project Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 9  The mine is in construction phase/ planning stage  Planned ore production: 750,000 tons/year  Ultimate stripping ratio: 13.6

10. Zarshuran Gold Mine Project Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 10  Planned mill plant production: 3,060 kg of gold 1,270 kg of silver  Project’s lifetime: 18 years including 3 years as construction phase

11. Initial investment for the mine Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 11 Cost items$ MillionShare (%) Buildings0.461.92 Infrastructure0.552.25 Trucks6.8928.42 Loaders4.1317.04 Auxiliary machinery3.1412.96 Administration costs0.502.07 Development costs5.522.68 Other costs1.064.37 Working capital2.018.29 Total24.25100

12. Initial investment for the mill plant Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 12 Cost items$ MillionShare (%) Land0.420.63 Infrastructure4.166.21 Civil works17.2825.78 Equipment and machinery33.5151.00 Erection costs3.675.48 Reclamation costs0.210.32 Administration costs0.320.47 Other costs2.984.44 Working capital4.486.68 Total67.04100

13. Operating annual costs for the mine Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 13 Cost items$ ThousandShare (%) Drilling500.58 Blasting3304.13 Spare parts5406.65 Maintenance91011.27 Wear parts3003.76 Engineering and consultancy500.59 Tires1,30016.12 Ramp maintenance100.17 Fuel94011.64 Lubricants7709.61 Communication40.05 Labor2,31028.77 Royalties1001.23 Administration costs500.66 Other costs3804.76 Total8,050100

14. Operating annual costs for the mill plant Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 14 Cost items$ MillionShare (%) Consumable materials10.659.19 Energy3.519.55 Spare parts0.975.4 Maintenance0.724 Administration costs0.050.3 Labor1.226.81 Other costs0.854.76 Total17.91100

15. Annual income Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 15 Average gold price (2003-2009): 621.17 $/oz

16. Annual income Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 16 Average silver price (2003-2009): 10.34 $/oz

17. Annual income Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 17 Total Annual Income = 3,060 (kg/year) × 621.17 ($/oz) × 32.15 (oz/kg) + 1,270 (kg/year) × 10.34 ($/oz) × 32.15 (oz/kg) = $ 61.5 Million

18. Net Present Value of the Project Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 18 NPV = + $ 36.6 Million Discount rate = % 15.4 (The average inflation rate for the last 7 years)

19. Net Present Value and Internal Rate of Return Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 19 IRR = 22.5% ($ Million)

20. Cumulative Value of the Project (Payback Period) Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 20 Year$ Million 1- 45.45 2- 79.69 3- 109.64 4- 74.06 5- 38.48 6- 2.90 732.67 852.53 988.11 Year$ Million 10123.69 11159.27 12194.85 13214.71 14243.14 15271.57 16300.00 17328.43 18348.98

21. Cumulative Net Present Value of the Project (Discounted Payback Period) Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 21 Year$ Million 1- 39.38 2- 65.10 3- 84.59 4- 64.52 5-47.14 6- 32.07 7- 19.02 8- 12.71 9- 2.90 Year$ Million 105.59 1112.95 1219.33 1322.42 1426.24 1529.56 1632.43 1734.92 1836.60

22. Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 22 ($ Million) Cumulative Net Present Value of the Project (Discounted Payback Period)

23. Sensitivity Analysis Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 23 Description Minus ($ Million) Base Case ($ Million) Plus ($ Million) Gold and Silver Price ±10%14.5836.6058.62 Operating Costs ± 10%47.2336.6025.97 Purchase Price ± 10%44.4536.6028.75 Discount Rate ± 10%48.8136.6026.23

24. Sensitivity Analysis Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 24 Therefore, instead of absolute numbers for most effective parameters: Gold Price, Silver Price and Discount Rate probability distributions are used

25. Probability distribution of gold price ($/oz Thousand) Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 25

26. Probability distribution of silver price ($/oz) Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 26

27. Probability distribution of inflation rate Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 27

28. Results of Mont Carlo simulation Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 28 Description NPV ($ Million) Minimum-67.35 Maximum16,253.96 Mean49.65 Standard Deviation 122.40 Variance141,259,016 Skewness0.003 Mode-65.88 NPV = $ 49.65 Million This is the most probable NPV and not $ 36.6 Million

29. Sensitivity ranking by Mont Carlo Method Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 29 DescriptionCorrelation Gold Price0.91 Discount Rate- 0.37 Silver Price0.01

30. Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 30 NPV is most sensitive to Gold Price Future price estimation: Average price taken here to be 621.17 $/oz World Bank forecasts that gold price will be 1,000 $/oz in 2020. This corresponds to growth in gold price of 5.4 % per year Risk Analysis Based on Forecast Data

31. Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 31 If total costs increase by less than 5.4 % per year, NPV will increase Therefore: Risk Analysis Based on Forecast Data

32. Conclusion Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 32 Sensitivity Analysis showed that the selling price of gold and silver; and discount rate are the most important parameters. This is often the case in mining projects.

33. Conclusion Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 33 The NPV and IRR of the project are calculated to be + $ 36.6 Million and %22.5 respectively. This is an attractive project for most investors. Based on the results of risk analysis, the average value for NPV is + $ 49.65 Million. We call this expected NPV.

34. Conclusion Case StudyIntroductionConclusionMethodologyCost & Income EstimationDCFSensitivity AnalysisRisk Analysis 2011 SME Annual Meeting, Feb. 27-Mar. 2, 2011, Denver, Colorado, US 34 Mont Carlo simulation also ranks the importance of important parameters to be:  Gold Price  Discount Rate  Silver Price

35. Thank you for your attention