THE INCONVENIENT TRUTHS OF MINING AND EXPLORATION IN

AUSTRALIA

Bernie HoganRegional Manager

Association of Mining & Exploration Companies

About AMEC

• Established 32 years ago

• Over 360 company members and growing

• Members include explorers, producers, and service industries

• National coverage – offices in Brisbane, Perth and Sydney

• Policy development and advocacy

AMEC is totally committed to obtaining the best business

environment for the mining and exploration industry across

Australia

2

Australia is not globally competitive

• Australia is losing exploration market share

• Costs spiralling - Government sees resource sector as a source of additional revenue.

3

Background:Federal Policies –increasing costs of production

• Taxation – Royalties/MRRT/Carbon Tax

• Cost Recovery – environmental approvals/safety levies

• Diesel Fuel Tax Credits – 6.2 cents Clean Energy/ heavy haulage - 2.5c for carry back of losses

• Native Title Payments (1bn pa) and Heritage surveys and related costs. 450 Claims to be resolved. Amendments unworkable for some States.

• Infrastructure – strategic support and leadership

• Financial Uncertainty – BTWG/ Budget implications

• Improve bilateral functionality - environment

4

Soaring Costs of Production

Xstrata recently stated that in 2007 it cost $61 to produce a tonne of thermal coal in Australia, and today it is $176 with a global average of $106. (WEEKEND Oz 23rd Feb)

Average C1 Gold Production Costs $1208/ oz (Deutsche Bank March 16th

2013 West). Includes Exploration. Using Goldman Sach formula Costs can be even higher

Hard Coking Coal – 2008 - us$60/t; 2012 – us$120/t (UBS GAM)

TRANSPARENCY IN THE COSTS OF PRODUCTION ACROSS COMMODITIES –ROYALTIES, FUEL CREDIT, TAXES, LABOUR

5

Where do the ASX raised funds go?

6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009 2010 2011 2012

Source

ASX raised funds for Australian

projects

ASX raised funds for overseas

projects

YTD

56%

YTD

44%

More ASX raised funds are heading

overseas!!

Australia Must Become More Competitive

• Fraser Institute Policy Potential Index

• A measure of a jurisdictions attractiveness as a place to invest in exploration

7

2002 2012

Australia 8/45 (18/100)

30/96 (31/100)

Canada 20/45 (44/100)

17/96 (18/100)

8

Australia’s Share of Worldwide Exploration Expenditure

(non-ferrous)

8

Australia12%

Canada18%

USA8%

Latin America25%

Pacific/SE Asia6%

Rest of World16%

Africa15%

2012Australia

20%

Canada14%

USA11%

Latin America27%

Pacific/SE Asia11%

Rest of World6%

Africa11%

1996

Source: Metals Economics Group

Australia must be globally competitive.

• Capital is mobile and now going offshore – over 50% -Africa, Mongolia, South America

• So how can Governments help? – reduce tax/royalties (amnesty)

– reduce cost recovery,

– provide access to infrastructure,

– reduce duplication in approvals,

– co-funded drilling…and

Improve the REGULATORY SYSTEM in Australia

9

Permit Approvals in Australia

• Qld 26 Months (all permits and approvals) Is setting targets

• WA – Mining Tenure 65 Days DMP (96% meet the target). 30 Days

Environmental Approval. All within DMP, but has stop the clock.

• NSW – Target 90 days Mining Tenure. Then 20 days for Surface

Disturbance Notice. Review of Environmental Factors

• NT – Exploration License 20 Days, However with notifications min 7-

8 months (non Aboriginal Land) or 28 months (28 months Aboriginal

Land). ALRA land average 43 months

10

• State/Territory Permit Approval Initiatives

- Streamline the approval process:- Online applications, improve quality of assessment

- Attempt to simplify land access including overlapping tenures

- Statutory timelines – remove/reduce “stop the clock”

- One-stop-shop / Lead Agency to reduce time in transition between Dept – WHOLE OF GOVERNMENT PERMIT

- Review Financial Assurance/Security Bonding and Offset policy. (MRF example)

- More consistent strategies in land use planning; wild rivers, strategic cropping, CIC/BSAL

Improving International Competitiveness

So what? Effect on Greenfields Exploration

• Provides the pipeline of mines of the future

• Is in serious decline in Australia – Centre for Exploration Targeting - paper Sept 2012.

• “The progressive shift of funding from greenfield to

brownfield exploration….is worrying as in the long run it will

affect the metal contribution to the national resource

inventory and with it the sustainability of the mining industry.”

• “It is estimated that in the absence of new significant

discoveries, based on current reserve and resources, about

half of Australia`s non-bulk commodities mines would be

exhausted between 7 and 18 years.”

12

Estimated Remaining life for Major Australian Mines(based on all operations mining >1 Mt ore in 2010. Excludes Bulk Minerals)

13

2011 2015 2020 2025 2030 2035 2040

Closure Date

based on current

Reserves

Estimated Mine Lives are approximate only and are based on dividing the current P&P Reserves and MI&I Resources by the production rate reported for 2011

Half of Australia’s existing

mines could close down

within 7 to 18 years

Half of Australia’s existing

mines could close down

within 7 to 18 years

Closure Date based on

current Resources

Source: MinExConsulting © August

2012

14

Greenfield spend is now half that of Brownfield

0%

20%

40%

60%

80%

100%

1996 1998 2000 2002 2004 2006 2008 2010 2012

MinEx

estimates

Percentage of Total Spend

Greenfield Exploration

Late Stage & Feasibility

Mine Site(ie Brownfield)

Brownfield Exploration

35%

Source: © Metals Economics Group, Corporate Exploration Strategies 2011

Note: Base metal + gold + diamond exploration expenditures by AllCompaniesExcludes exploration on Bulk Minerals and UraniumDetailed breakdown for 1996 & 2012 are MinEx estimatesAssumes that all of the Grassroots spend by Majors and half of the Grassroots spend by Juniors is on Greenfield targets

21%

39%

47%

Boost Exploration with new Capital

• AMEC Federal Policy Paper – distributed

• By Department, outlines Policy Priorities– Bi-lateral environmental agreements

• Difficult with EPBC Act amendments (Water trigger)

– Minerals Exploration Tax Credit• Grows the Capital base

• Australian investor/Australian project

• Scalable for budget constraint

• Incentive for retail investor

• Greenfield exploration

15

16

THANK YOU

Visit www.amec.org.au for more information

Bernie Hogan

Bernie.hogan@amec.org.au