Developments in Mining & Barriers to Trade APEC Symposium Good Policy & Regulatory Practices for Facilitating Trade & Investment in Mining and Energy Services Tuesday 16th June 2015

Presented by: Jeff Elliott Managing Director CSA Global

Contents CSA Global’s role in the mining services sector Global trends & challenges in the mining industry Drivers & barriers to mining investment Some examples of regulatory change and impacts to mining investment The importance of gov’t support for a growing and healthy mining industry 9/06/2014

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CSA Global – about us We are independent consultants to the global mining industry • Local knowledge backed by global presence & expertise • All mineral commodities… • All geological terranes & geographic regions… • Feasibility studies, mine development & operations… • Resource assessments, due diligence, expert reports… • Strategic & specialist advice, information, technologies… • Trusted advisors to public & private sectors for 30 years

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Our role in the mining services sector One of Australia’s largest mining industry consultancies • Independent experts to majors & junior mining companies • Advisory roles to governments & stock exchanges • Estimation of Mineral Resource & Ore Reserves • Mine planning, design, operational improvement • Cradle to grave services (initial exploration to mine closure) Identify / Invest

Explore

Evaluate

Develop

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Produce

Close

Our experience in the APEC region Involved in the APEC region’s mining industries since 1984 • Established operations / commercial presence in: – Australia (Perth, Darwin, Brisbane), Indonesia, Singapore, Russia & Canada. Growth aspirations in Latin America

• Significant cross-border consulting experience – Asian (Aus & Asian offices) & American projects (Aus & Can offices)

• Technical training services to companies & individuals – International reporting codes, exploration & mining practices

• On-ground, mining project experience globally www.csaglobal.com

CSA Global offices

Global trends in the mining industry Since 2012 the global mining industry has been in turmoil • Volatile commodity prices affecting margins • Tight capital, short termism & loss of confidence • Lack of sustained investment in exploration • Retrenchments reducing the pool of knowledge • Government, community or environmental concerns

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Global trends in the mining industry Challenges can create opportunities… • Focus on quality, productivity & investment returns • Greater emphasis on social licence to operate • Declining resource nationalism, more engagement • Lower cost environment (energy prices, wages, equipment) • Opportunities abound for those with vision

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Drivers of MINEX investment Macro factors • World economy – growth, urbanisation, standard of living • Commodity prices – demand / supply issues • Access to capital – market sentiment driven Local factors • Geological - well endowed in economic minerals • Prospectivity – track-record or under-explored • Data - access to regional geological & exploration data • Stability of laws, regulations & policy– security of tenure, transparent & fair system for investment & development • Security & health risks – terrorism, civil unrest, disease www.csaglobal.com

Exploration is a leading indicator Worldwide exploration budgets by country, 2014 5%

21% 11% 19%

12%

APEC share ~70% www.csaglobal.com

Barriers to MINEX investment Macro factors – reduced growth, lower prices, tight capital Local factors (higher to lower rating) • High risk environment – health, security, political - DPK • Restrictive ownership or development laws - China • Negative community views towards mining – Solomon Is. • Complex environmental or social issues - USA • Land access / permitting issues – Thailand • Limited mineral potential – Singapore / Hong Kong • Lack of pre-competitive geoscience data - Malaysia • Accessibility of tenement records / historical data – Indo.

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Health risks International SOS’s Health Risk Map 2015

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Security risks Controlled Risks Security Risk Map 2015

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Political risks Controlled Risks Political Risk Map 2015 Body copy

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Drivers of METS investment Macro factors • World economy, commodity prices, capital markets • Level of activity by MINEX (clients) Local factors • Market opportunity – open or competitive market place • Ease & cost of establishing business • Reasonable operating costs • Supportive regulatory environment • Availability of skilled personnel for training / development • Ability to transfer resources between parent & subsidiaries

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Barriers to METS investment Macro factors • Poor outlook, tight capital, low activity levels Local factors (higher to lower rating) • High risk environment – health, security, political • Restrictive foreign ownership • Highly competitive or protected market for services co’s • Difficulty of establishment / setup – registered capital, bank accounts, letters of domicile, visas, etc. • Ongoing operational issues – manpower limitations, restrictions on business activities, etc. • Taxation / financial structure issues – withholding taxes, lack of bilateral tax / trade agreements www.csaglobal.com

Real examples - barriers Lack of investment in pre-competitive geoscience data… “South Africa’s geoscience ‘desperately’ underfunded – Nedbank Capital” JOHANNESBURG (miningweekly.com) – Government geoscientists are desperately underfunded, which is depriving South Africa of the geological potential that is essential for minerals exploration. There is an absence of investment in large, regional geological exercises and masters students are not being trained in the countercyclical times, when the industry is not doing well. http://www.miningweekly.com/article/south-africas-geosciencedesperately-underfunded-nedbank-capital-2015-06-05

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Real examples – policy impacts “The real cost of Indonesia’s commodity export restrictions The Indonesian government has geared up its efforts to limit raw commodity exports.” “The government’s aspiration to move up the industry value chain and secure long-term supplies for the domestic market are the main drivers behind these initiatives.” “While policies may yield benefits for Indonesia in the longer term, they also bring many nearterm challenges. The trade balance could further deteriorate from shrinking export revenues. As a result, both investor confidence and economic growth could suffer.” “…there is a clear urgency to develop domestic mineral-processing facilities. An export ban alone won’t deliver this. Concerted efforts are also required to mobilize funding, simplify permit requirements and develop support infrastructure, such as port facilities and power supply. If this does not occur, activities in the mining sector will not recover.” http://www.thejakartapost.com/news/2015/06/08/the-real-cost-indonesia-s-commodityexport-restrictions.html#sthash.vtj8pmqS.dpuf www.csaglobal.com

Real examples – adjusting policy Not proceeding with royalty increases & offering relief on iron ore royalties payments due to economic effects “No mineral royalty hike for WA The WA government says it won’t be increasing mineral royalty rates in this year’s state budget. “The responsible and most effective way to increase royalty revenue is to have policies which grow the size of the resources sector. Initiatives which keep the sector strong and prosperous will be welcomed by those Western Australians directly employed in the industry.” http://www.miningaustralia.com.au/news/no-mineral-royalty-hike-for-wa

“Iron ore relief package backs jobs and industry The State Government will make temporary assistance available to junior iron ore miners on a case by case basis as they restructure operations in challenging market conditions “This is not a handout, this is a deferral and is a good outcome for WA,” Mr Marmion said.” http://www.dmp.wa.gov.au/pdf/7105_21268.pdf www.csaglobal.com

Real examples – incentive policies Tax / rebate incentives to encourage better practices “Canada recognises green mining initiative” The Canadian government has recognised an initiative that encourages mining companies to increase energy efficiency and reduce greenhouse gas emissions, with participants in the Towards Sustainable Mining (TSM) initiative to qualify for funding from the Canadian Industry Energy Conservation (CIPEC). Qualified mines can receive up to C$40,000. http://www.miningmagazine.com/ management/water-environment/ canada-recognises-green-mining- initiative/

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Real examples – incentive policies Proactive & positive policy to stimulate investment from mining industry and mining services Exploration Incentive Scheme The Exploration Incentive Scheme (EIS) is a State Government initiative that aims to encourage exploration in Western Australia for the long-term sustainability of the State’s resources sector. The $130 million initiative, is to stimulate increased private sector resource exploration leading to new mineral and energy discoveries. http://www.dmp.wa.gov.au/7743.aspx “…modelling found that for every $1 million invested in the EIS the long run expected net benefit to the State is $23.7 million.” Source: ACIL Allen

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Real examples - incentive policies Exploration Incentive Scheme benefit summary

Source: ACIL Allen

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Real examples – value of sector Pan-Ontario mining supply and services sector Economic Impact Study The Conference Board of Canada states that the Mining Supply and Services (“MSS”) sector is a “multi-billion industry, yet it is a ‘hidden’ sector that is not directly measured or tracked due to overlaps of serving other industries as well”. “…the MSS sector is estimated to have contributed over $6.2 billion to Ontario’s GDP and was a source of over 68,000 jobs in 2011. Given the above estimates and for comparative purposes, the direct economic impact of the MSS sector is larger than the size (GDP) of the information and communication technology manufacturing industry and the motion picture and sound recording industries in Ontario.” Source: Canadian Association for Mining Equipment and Services for Export. October 22nd 2014

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Real examples – growth options Growth of mining services sector and increasing exports Chile faces Peru METS challenge “A December 2012 study found Chile had 5,998 mining industry suppliers, up from the 4,643 in 2010. About 34% were classified as support services, 30% equipment and supplies, 27% contractors and 9% engineering and consulting service providers. Innovum Fundación Chile also reported the number of such companies exporting grew from 27% in 2007 to 34% five years later.” “But despite its strength and success, there are threats to its competitive position…”. "Chile has become expensive. Labour costs are increasing, which is compensated to a certain extent by the availability of people, but there are new regulations coming that are going to have an impact in the way that you hire people that you do not see in other countries in the region.” "There is a gap between Chile and Peru but Peru is approaching Chile very fast. Peru has a wellprepared base of engineers and professionals, a well-established mining culture in the country and so it is a matter of time before it catches Chile. http://www.mining-journal.com/services-top-articles/chile-faces-peru-mets-challenge/ www.csaglobal.com

Mining needs vision & gov’t support Development of robust, sustainable mining & mining service industries takes time and requires… • • • • • •

Long-term government support Provision of pre-competitive geoscientific data Transparent and stable regulations & laws Collaboration with mining & service companies Commitment to education & training Pro-active strategies to stimulate investment

It takes strong leadership with a clear vision for the future

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What’s your mining vision?

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What’s your mining vision?

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Thank you for your attention

For more information please contact: Jeff Elliott Managing Director +61 8 9355 1677 www.csaglobal.com