kpmg mining update - edition 2

MINING UPDATEEDITION 2February 2014 | kpmg.com/mining

© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

2MINING UPDATECONTENTS | FEBRUARY | EDITION 2

GEOGRAPHIES

EXECUTIVE ISSUES REGULATION UPDATES

No paper chase: Transforming risk

16Tax Structuring

Optimizing Mining Projects

22Commodities

10Project

Development – Timing is Everything

07 The M&A Environment in Mining

04 Mining in Africa: Towards 2020

Global Metals Outlook

Current trends and emerging business

opportunities for the metals sector

read the full article here

Zambia: Country Mining Guide

05

Mozambique: Country Mining Guide

06 14Labor Productivity:

Time is Money

21

Global Mining Institute

EU Directive on Disclosure of Payments to Governments

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12

FOREWORD

Richard Sharman

Partner, UK Head of Mining

© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/global-metals-outlook-2013.pdf

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/global-metals-outlook-2013.pdf

WEL

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E FOREWORD

Welcome to the second edition of our Mining Update.

In this edition we continue our focus on Africa. However as each day of development consumes vast amounts of capital in a time of rising costs and falling commodity prices we examine a number of executive issues such as project development, labor productivity and

tax structuring. We also look at the current M&A environment for mining organisations – a topic which will be further explored in the next edition when we will look at industry best practice in the disposals process and how best to prepare for and execute disposals in order to maximise value, maintain control and minimise disruption. Issue Three will also reflect on Mining Indaba,the FT’s Global Commodities Summit and what lessons the mining industry can learn from manufacturing.

If you have any comments on this Update or have any suggestions for articles for our third edition then please do let me know.

RICHARD SHARMAN

PARTNER, UK HEAD OF MINING

Connect with: Richard Sharman +44 20 7311 8228 [email protected]

3MINING UPDATE


mailto:Richard.mas.Sharman2%40kpmg.co.uk?subject=

The African continent is richly endowed with mineral resources. The US Geological Society ranks Africa as the largest or second-largest reserve of

bauxite, cobalt, industrial diamonds, manganese, phosphate rock, platinum group metals and zirconium.

Africa has a history of acting as a feedstock for the world’s mineral hunger. British, Belgian and Portuguese colonies produced precious metals and gems from the early 1800s while the majority of private foreign capital invested on the continent between 1870 and the Second World War was channelled into mining. By the early 1990s, however, the continent was still only receiving 5 percent of global exploration and mining development expenditure.

A study by the Word Bank on the shortcomings of African territories in the eyes of miners revealed a need for infrastructure, stable legal systems, a predictable fiscal regime, profit repatriation guarantees, and access to foreign exchange. The remarkable changes that took place in Africa from 2000 to 2011 resulted in the continent receiving 15 percent of global exploration expenditure and mining investment during 2012.

The outlook for Africa’s mining sector remains bright. Huge tracts of Africa remain largely unprobed.

Sources: US Geological Survey, NKC Research

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TOWARDS 2020

CLICK HEREread the full report online...

4MINING UPDATEBACK TO CONTENTS


http://www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/Documents/Mining Indaba brochure.pdf

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For two decades, Zambia’s mining sector has experienced significant foreign interest and investment driven mainly by the privatization of state-owned Zambia Consolidated Copper Mines (“ZCCM”), as well as a low taxation environment and low political interference. Zambia is in possession of

some of the world’s highest-grade copper deposits and was the world’s sixth largest copper producer in 2011 with 715,000 tonnes equating to 4.4 percent of global output. With several expected expansion plans, Zambia is viewed as a key growth area for copper production which is likely to rank the country amongst the top five copper producers globally going forward. In addition, Zambia’s coal industry is viewed as a key growth sector. Despite currently being one of the smallest coal producers in Southern Africa, Zambian coal output is forecast to experience rapid growth from 281,000 tonnes in 2012 to production in excess of two million tonnes by 2017. While this level of coal output growth is not expected to significantly affect global coal production, it could alleviate a large part of Zambia’s current electricity deficit as the majority of coal production could be utilized for power plants expected to be constructed in the near future. Being a landlocked country, infrastructure and access to ports remain a key concern, but this also creates substantial opportunities for investment in electricity supplies and transport routes. Over the past five years, Zambia has experienced in excess of US$8 billion of investment and, considering forecast growth in copper and coal production, Zambia is set to gain a competitive regional advantage over other African mining destinations.

Read KPMG’s Pit to Port article from the first edition of our Mining newsletter here

Sources: BMI Zambia Mining Report Q2 2013; The World Copper Factbook 2012


ZAMBIA: COUNTRY MINING GUIDEEVERYTHING YOU NEED TO KNOW ABOUT MINING IN ZAMBIA

5MINING UPDATE


http://www.kpmg.co.uk/creategraphics/08_2013/Mining SWF/KPMG DOCUMENT/index.html

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/zambian-country-guide.pdf

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Vast coal reserves and significant potential for additional mineral deposits in Mozambique help to position the country as one of the most important

growth stories in the global mining sector going forward. Mozambique is set to benefit from high coal demand from China and India and could well become one of the 10 largest coal exporters globally by 2017. Coal output is forecast to reach 41.8 million tons by 2017, driven mainly by Vale and Rio Tinto. Vale production is set for China, whilst Indian companies have shown great interest in developing mines in Mozambique.

There are some downside risks to the mining sector in Mozambique. Most notably the lack of proper infrastructure, which results in an inability to meet the demands of the mining sector. As a result, Vale is investing in the development of the Nacala corridor project for transporting coal from the mine to the sea port of Nacala. The 912-kilometre transport corridor will have a transport capacity of 18 million tons of coal per year.

Furthermore, Mozambique is almost entirely focused on coal, which makes the country highly susceptible to fluctuations in the price of coal.

To curb its looming infrastructure woes in light of the expected growth in the mining sector, Mozambique will have to invest substantially in electricity supplies, export infrastructure and transport routes. Plans are currently in place to increase capacity at the port of Beira to 18 million tons per annum by 2014, and the railway line linking Vale’s Moatize mine to the port of Beira is in the process of being expanded and rehabilitated to meet increased capacity demand.

Despite its infrastructure constraints, Mozambique’s sound business environment has been favourable to investment for two decades. This fact, in conjunction with low taxes and a general lack of political interference, places the country and Southern Africa at the forefront of attractive mining destinations.

Read KPMG’s Pit to Port article from the first edition of our Mining newsletter here

Source: BMI country mining report Q2, 2013 for Mozambique


EVERYTHING YOU NEED TO KNOW ABOUT MINING IN MOZAMBIQUE

6MINING UPDATE



http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/mining-country-guides/Documents/Mozambique-mining-country-guide.pdf

Commodity prices have been falling. For a while gold bucked the trend but even that followed the others over the course of 2013. Costs in many areas, on the other hand, have continued to rise, including: labor, energy, security and equipment costs as well as– compliance with regulations on environmental and social performance and the rise of resource nationalism. The mining industry has faced soaring cash costs which have led to significantly reduced cash flows, subsequent write offs of assets and weakened balance sheets.

THE M&A ENVIRONMENT IN MININGEX

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Over the course of the last year, five trends have emerged from asset write downs and lower, diminished asset valuations which may continue into 2014.

Five trends in minerals and mining for 2014:

1 Scarcity of funds to develop mining projects

Asset divestitures by the majors

Asset undervaluation attracting new entrants

Off takers (e.g., commodity traders) continuing to go long on assets

Megaprojects becoming collaborative

23452013 was a challenging year for fund raising in the mining sector. Many junior mining companies are no longer finding it easy to raise cash to develop their projects. The squeeze in margins has made the credit markets nervous about the mining sector in general which means that credit is not easily available to fund the development of mining projects. Increasingly, lenders want more equity and more visibility on potential cash flow - the ratio of debt to cash

WRITTEN BY RAMA AYMAN, PARTNER



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flow has come down and the ratio of equity to debt has gone up. At the same time, similarly, the IPO market for mining companies is less available as investors have become much more cautious about participating in mining sector offerings.

With very few exceptions, many junior mining companies are struggling with raising sufficient funds to bring their projects into production. The markets are increasingly sceptical of the ability of many mining juniors to become cash flow positive before running out of funds – as such,their stock prices have collapsed often by more than 70%. Often, the only realistic solution is the M&A market with the objective of bringing in a strategic investor to help develop projects.

However, many of the ‘usual suspects’ (i.e., the major producing mining companies) are no longer in the acquisition game as much as they were previously - they too are also struggling with margins, and themselves are sellers of assets. Many of the majors that made a lot of acquisitions (often via leverage) in the ‘good times’ are now having to focus on margins, cost optimisation and performance improvement of their own assets – and to de-leverage they are now selling their own assets, starting with those which are more non-core and higher cost. This means that these organisations are focussing more of their time on portfolio management and cost issues and are not putting management time and resources into making new acquisitions. The well-tried model whereby a company would obtain a license and develop it before selling it onto a larger company and so on until it came to the attention of an owner with the resources

to take it into production is now in question. The number of major mining companies who will go out and buy the assets of junior miners is significantly lower than before – many majors are thinking hard about what could be put into the non-core basket and making that basket as large as possible in order to de-leverage sooner rather than later.

New players are now watching the market with a view to potentially buying assets that are so much cheaper today than just a couple of years ago. Subsequently, there has been a rise in the number of new entrants comprising mining-focused captive investment funds and private equity funds. In addition, some of the more traditional mainstream private equity funds are thinking opportunistically that this might be a good time to come back to the metals and mining space and start making acquisitions.

Fourthly, off-takers are changing their spots. Large trading companies from Japan, Korea, China and Europe have developed a strategy over the last few years of owning assets across the supply chain. That trend is still continuing – to buy shareholdings in assets in order to get attractive long-term off-take agreements.

Finally, the very large projects with capex over US$2-3 billion – the kind that are vital to the GDP of some emerging market countries – are being approached more cautiously. Previously, a major mining company would develop such projects by itself but now the costs are getting too high and the risks more significant. Going forward, it is likely that an increasing number of mining companies will look for joint venture partners and other

strategic partners or financial backers to develop the mine – overall, it is expected that the model that has worked well in the oil & gas industry will become much more common in mining.

All of these trends are driven largely by the tightening margins caused by the confluence of reduced commodity prices and cost inflation. But there is another factor which has its own impact on M&A plans – i.e., the evident rise in many jurisdictions of resource nationalism. Many mining companies in several countries are witnessing backlash from governments and communities who want a greater share of perceived profits. Their demands are becoming louder around a number of issues including insisting on higher environmental standards and adequate corporate social responsibility. In some cases a big mining project will form 20 or 30 percent of the given country’s GDP or exports and they are demanding proportionate levels of social engagement. All of which comes at a cost. Additionally, governments are demanding a higher level of shareholding in mining projects and several countries are also looking to secure more of the downstream value chain and insisting on local beneficiation, as has been seen most recently in Indonesia.


8MINING UPDATE

Such demands are coming at a difficult time for mining companies who are suffering from much lower margins and cash flows. In the short to medium term, we shall see a marked increase in transparency for companies to show exactly how their money is being spent and how much of their profits are being shared in various ways with the respective local governments in the form of taxes, royalties, dividends, corporate social responsibility expenditures and other investments in local infrastructure.

There seems to be a much greater need for a multi-stakeholder approach to developing large mining projects – which will require far greater consultations between companies, governments, communities, employees and shareholders.

These trends, in the longer run, are good for the mining industry. Companies by necessity are having to get more cost efficient and more engaged with various stakeholders in local partnerships – both of which will mean that they will be better placed to succeed in the cyclical recovery. Going forward, I believe the long-term supply-demand balance continues to point towards a bullish scenario for most mining commodities. The demand for these commodities will remain strong as long as: China continues its drive towards 70% urbanisation by 2040; India, with a population of over one billion, develops its infrastructure requirements to catch up with China and Europe and; other emerging regions such as Africa accelerate their speed of socioeconomic development.

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Author: Rama Ayman, Partner and Global Head of Metals & Mining Corporate Finance

Rama Ayman is also the author of the section entitled “M&A and Financing: Replenishing a diminishing asset base in” in our recently published “Growth in a Time of Scarcity” publication.

This article is based on an interview with John O’Hanlon that originally appeared in BE Mining.

Connect with: Rama Ayman +44 20 7694 2759 [email protected]



mailto:rama.ayman%40kpmg.co.uk?subject=

10P&U QUARTERLYBACK TO CONTENTS

Few mining companies possess either the engineering strength or the will to build a mine completely independently.

The ‘engineer, procure, construct’ (EPC) model is an increasingly popular approach to oil, gas and infrastructure development, with full responsibility passed to a single, large contractor, who charges a premium for assuming the risk. This approach is attractive to financiers, who are reassured that the development is in the hands of a large, reputable organization. However, EPC gives the project owner less influence over standards, and with contractors struggling to find sufficient skilled people, engineering and construction quality can suffer.

An alternative is to use ‘engineer, procure, construct and manage’ (EPCM), which involves contractors designing and managing the project, while the owner chooses a range of other contractors (or in some cases in-house teams) to carry out various elements of the building work, thus retaining more control. ‘Early contractor engagement’ is a further option, with a number of contractors engaged to undertake design, and one eventually chosen for the build phase, although this can prove more costly as the contractor must be paid in the initial stages.

Regardless of the type of contractor arrangement, once the development begins, the clock is ticking – in some cases to the tune of millions of dollars a day – making delays the biggest enemy. Project managers have to cope with incredible levels of complexity and scale, with thousands of workers across multiple sites that may be hundreds of kilometers apart. Every detail must be attended to, including building power stations, water lines, transport connections and accommodation, clearing the ground and arranging catering, as well as smaller yet important details such as TV quality and reliable broadband connections. Cultural sensitivities are also becoming more important;

for example, in Australia, construction cannot start before a comprehensive survey of heritage sites, which can take a year or longer.

Even the best prepared projects will inevitably require changes along the way due to engineering or environmental issues, or because contractors experience financial difficulties. The way in which these changes are handled can make an enormous difference to the bottom line. Fast decision-making is essential to keep construction on schedule. This calls for a swift flow of accurate information to management via reliable processes and systems. Despite the need for speed, owners must remain rational and not give way on every requested change, as this may push costs up to an unsustainable level.

Managing commercial terms and cash flowWhere work deviates from the initial contract, the owner will be keen to avoid any slowdown while the contract is amended (this can take up to 6 months). You may have no choice but to pay the contractor based upon a rough estimate of the additional costs. If retrospective analysis shows that this compensation has been too high, the owner then has the hassle of trying to reclaim the overspend. The alternative is to hold back from paying until the new contract is ready; a risky tactic that could lead to a contractor threatening to walk off the project.

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With each day of development consuming vast amounts of expenditure, owners need to maintain a fast pace throughout the project and keep their human and physical resources fully productive. Changes to plans are unavoidable, but additional costs can be minimized through effective management decision-making and strong contract management.

10MINING UPDATE



Many mining companies agree to some form of ‘take and pay’ arrangement with their customers or major suppliers (e.g. for transportation and/or utilities), which activates as soon as the mine is considered operational. Having been paying out billions of dollars over the development period, owners will want to start earning revenue, so they must confirm that the site is in production. This is harder than it sounds and typically requires certification from government, regulators or bank inspectors, to meet performance guarantees over the level of output. Again, time is of the essence and holdups can eventually lead to cash flow shortages and, at worst, a default on loans.

Helping you survive in the fast laneMoving from feasibility to development involves a big change of pace in activity and considerably higher costs. Having worked on a wide range of projects around the world, KPMG member firms’ construction and engineering specialists help clients cope with the new pressures of construction. We can evaluate potential contractors by carrying out a form of due diligence on their competence, capacity and financial stability. Our forensics experts can also act as ‘contract doctors,’ advising on adapting changes in scope and validating and enforcing agreements, helping to reduce disruptions to progress and optimize payments to suppliers and from customers.

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From nowhere to somewhere: Building a megaproject in the Gobi Desert

Deep in the Gobi Desert, Mongolia, one of the world’s most remarkable mining plays is nearing completion. The project is remarkable not only because of its size – it is expected to account for 30 percent of Mongolia’s gross domestic product (GDP) once completed – but because of its rapid development, with just 10 years between the discovery of the deposit and the commencement of work.

This project truly demonstrates the importance of project development expertise, including creating a specific strategy and plan; undertaking strong feasibility studies; identifying financing and infrastructure needs; making a strong project plan with timelines and responsibilities, as well as clear stakeholder engagement plans; and planning for tax and other compliance obligations.

CASE STUDY

Author: Rodney Nelson, Global Mining Leader – Projects, KPMG in Australia

This article was taken from Mining projects; Seeking greater value. Read the full report here

Connect with:

Rodney Nelson +61 8 9263 7454

11MINING UPDATE



mailto:rodneynelson%40kpmg.com.au?subject=


NO PAPER CHASE: TRANSFORMING RISK MANAGEMENT EX

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Companies are entering more and more remote regions of the world to search for natural resources, often in fragile countries where the state is weak and the environment is under threat. Technology is creating immense opportunities to develop, until now, unconquerable areas. But labor relations are fraught with tension in some parts of the world. And public opinion is often hostile to Energy and Natural Resource companies (ENR) companies, even in places that rely on natural resources for their livelihood.

In short, ENR companies face an ever-growing array of risks. But in a worldwide survey of senior executives in the industry,1 we found that the management of these risks was not advancing as fast as the threats facing these companies. Today’s complex business environment requires an even stronger ability than before to master risk management, but companies are falling short in important areas.

“ENR companies face an inflection point in their risk management efforts,” says Michael Wilson, Partner, KPMG in the US. Even companies that were early adopters of enterprise risk management, have stalled in the past few years, as many have been using nearly the same process they first implemented. Companies need to return to basics and reconsider what the expectations are of their programs if they are to take risk management to the next level.

1The survey of executives was conducted by the Economist Intelligence Unit in December 2012, as part of a research program covering a wide range of sectors. A total of 1,092 C-level executives responded to the questionnaire, of which 156 were employed in the ENR industry. Thirty-nine percent of ENR executives were in North America, 23 percent in Asia-Pacific and 16 percent in Europe. The remaining 22 percent were in Latin America, Middle East and Africa. All were C-level executives in various functions, including Risk, Compliance, Finance and General Management.



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INTEGRATION ANDCOMPREHENSIVENESS

There are two main reasons why companies are being outfoxed, says Steven Briers, Partner, KPMG in South Africa. First, “companies have only addressed two or three key processes of enterprise risk management and are not linking it to the company’s financial framework.” They may conduct an enterprise-wide assessment once a year, but the way in which risk is measured doesn’t correspond to the company’s financial imperatives. “The heart of the problem is that even huge companies address and measure risk very simplistically. It’s not connected to the real-world finances and operational targets of the group,” he adds.

Briers suggests the second reason as: “Risk management is incorrectly positioned as a compliance function or a governance obligation. Management will go along with a one-day workshop on risk, but the whole exercise is seen as a paper chase.”

He states that risk management is regarded as a mechanism for describing risks and communicating them to the Board, but it is not seen as a strategic function, and is not part of the business planning cycle. According to Briers: “It is not considered an essential piece of strategy formulation. It exists in a parallel universe.”


13MINING UPDATE


http://www.kpmg.com/global/en/issuesandinsights/articlespublications/documents/no-paper-chase.pdf?utm_medium=email&utm_campaign=2013-enr-enr-risk-pov&utm_source=internal&utm_content=gbl+2014+jan+8+sidebar


Whether in an open cast or underground mine, each stage of the operation — drilling and blasting, loading, hauling, crushing, processing and the final transportation — is dependent upon incredibly tight coordination to ensure that neither costly equipment nor work teams are standing idle and unproductive.

There are a number of key indicators that determine the relative efficiency of a mine’s workforce, all of which can be compared against comparative best practices in similar mines in the same or different geographies.

If a mine is not delivering its target output per man-shift (OMS), then it is likely to be running below capacity. The overall cost of manpower per unit of material extracted is a critical indicator of performance.

Although better deposits (such as geological features) and operational factors contribute to good productivity, other company-specific or emerging industry innovations and technology advances are equally or even more important. Mining companies should, therefore, continue to seek labor efficiency improvements and monitor performance closely to ensure that labor costs per metric tonne of ore extracted are within target levels.

Annual production plans determine mine-level operational plans, management structure and help define production targets and crew allocation requirements. The annual production and operational plans for a mine are, in turn, created with input from mine management and are driven by a combination of the mine extraction strategy and past performance figures, with any readjustments carried out on a periodic basis.

Crews are sized, trained and allocated according to production targets and, where applicable, are given an early view of potential profiles based on their planned production targets. Labor unavailability and

changes in blasting schedules can cause variances between planned and actual production outputs and performance is measured at both mine and crew levels, with mine productivity benchmarked through several reports and crew efficiencies recorded through the bonus system.

• Blasting is a particularly important activity, as the loading and hauling that follows a blast requires both people and equipment to move the loose material from the mine. If a blasting opportunity is missed, defined as a ‘lost blast’, for any reason, then these resources are waiting in vain at great cost, which produces a sharp fall in productivity, as measured by OMS.

• Absenteeism rates can make interesting reading and high levels are often synonymous with higher costs, as an absentee typically has to be replaced at short notice, often on weekends or during national or religious holidays, when overtime rates may have to be paid. The correlation between the amount of overtime paid and absenteeism is generally strong, so these cases should be investigated to ensure that staff have a genuine reason for being off work and an absenteeism strategy can be put in place.

• At an executive level, the mine managers need sufficient layers of management to assume responsibility for smooth operations and safety. However, if the balance between executive

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By identifying and addressing relatively small inefficiencies in worker performance, it is possible to make substantial productivity gains.

Levers for improving labor productivity

14MINING UPDATE


of lower productivity. We have built up a large database of results from around the world, covering many types of activity across surface and underground mines. Even where a client is meeting the industry standard, we can advise on setting ‘stretch’ targets that reach for even higher levels of OMS or manpower cost per unit. We gather information through observation and interviews and can scrutinize the management structure and crew composition to help ensure a well-balanced, cost-effective and productive team.

and non-executive positions is wrong and/or there are overlapping/ ambiguous roles for key executive positions, then there may be too many non-productive workers, which will push up costs per unit extracted.

• The mix and size of a work crew can also have a big impact on efficiency and safety. These teams combine drill machine operators, explosives experts (to plant the explosives into the drill holes) and loading machine operators who gather the rock to be transported to the surface and refined. If a crew has a surplus or shortage of any type of specialist or lacks the appropriate mix of youth and experience, then there will almost certainly be room for improvement. For example, if there are plenty of drillers but not enough explosives people, then the blasting will be delayed.

• It is important to consider the contractor-to-employee ratio. When a reasonable proportion of contractors perform direct mining operations, the fixed cost component of labor involved in mining operations is easier to manage, which provides flexibility to adapt to variable production levels (due to seasonal effects and/or changes in the external business environment, including demand fluctuations, price volatility and regulatory changes).

By benchmarking the performance of mine workers with peers in similar operations, KPMG member firms’ professionals can identify areas

Turning the levers

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Planning

Labor productivity impacts all stages of mine management

Source: KPMG International 2013

Execution Monitoring

Mine design andextraction strategy

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Life of Mine (LOM)planning

Central resourceplanning

Crew mix,training and design

Business improvementbenchmarks

Bonus paymentsBonus forecast Overtime shiftsMetric tons delivered

Turnkey contractorallocation

Unavailabilitymanagement

Performancemeasurement

Blasting scheduleexecution

Current mine management structures are not aligned with initiatives focused on improving productivity per crew/employee.Crew members have non-overlapping segregated duties, which provides an opportunity for multitasking of crews.

•

•

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Crew ef�ciency and metric tonnage in mines are affected if the planned number of blasts in a month are not being executed.Unavailability and overtime are consistently higher than budget and are driven by higher than budgeted sickness, leave, etc.Current contractor vs. employee ratio does not provide an opportunity to scale employees in sync with production variations.

Crew allocation

Crew input onproduction targets

Annual productionbudget

Operational plan

Daily productiontargets

Engineeringmaintenance

Plan vs. actualreadjustments

Mine managementstructure

Monthly mine levelproduction plan

Author: Bidyut Chakraborty, Management Consulting, KPMG in India

This article was taken from From volume to value; Cost optimization in the mining sector. Read the full report here

Connect with: Bidyut Chakraborty + 91 33 4403 4068 [email protected]

15MINING UPDATE



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TAX STRUCTURING OPTIMISING MINING PROJECTS

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As mining companies adopt increasingly sophisticated structures spanning countries and regions, they are viewing project structuring across the entire

supply chain. The associated tax structuring should therefore be an integral part of the planning process throughout the mining project life cycle.

Up front assurance over key tax inputs

Right at the start, before any development work commences, project owners should be aware of the key tax rates and methodologies that will apply over the life of the mine. When combined with knowledge of global and in-country tax policy, such understanding can help to ensure a realistic forecast and ultimately support the decision to mine.

Tax and resource royalty rates, as well as other tax rules, may change substantially over the project lifetime as governments come and go and new taxes are developed. Such variations may affect the overall return on investment, and in extreme cases create an element of uncertainty at the project planning and feasibility stage.

One way to hedge against such uncertainty is to negotiate with the authorities to agree to a fiscal stability agreement (FSA) that locks in a fixed royalty rate. A well-drafted FSA can also achieve greater assurance over income tax rates, debt/equity safe harbor levels, tax depreciation rates and new taxes.

Certain countries may also have bilateral investment treaties (BIT) that protect investments against expropriation or unfair treatment and create a level playing field. For mining investors from relevant treaty countries, a BIT offers access to international arbitration – a neutral forum for resolving disputes between foreign investors and the state.

By considering all these issues, owners can more reliably include important tax assumptions in the project feasibility financial model. Of the many factors that impact the forecasted after-tax project returns, the crucial tax inputs are the royalty rate and methodology (e.g. royalty or resource rent tax), the corporate income tax rate and the depreciation write-off rates. In some countries it is useful to confirm the recoverability of tax credits such as VAT.

Whether a mining project is large or small, early tax planning

can optimize tax benefits, increase certainty over the tax burden, and create a flexible framework for developing the legal ownership structure, contractual arrangements and funding.

16MINING UPDATE


REGU

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Today’s mining projects are so immense that even the largest companies may not have the capital, resources and expertise to go it alone. A popular holding structure for mining projects is an unincorporated joint venture (UJV), which enables two or more parties to directly hold a defined stake in the venture.

Part of the attractiveness of UJVs is the flexibility for participating companies to bring their own capital and resources, receive their own share of the mined ore independently and separately account for taxation. For example, in the early years, each party can independently utilize any start-up losses immediately against other tax positive projects, thus optimizing the tax burden.

Many mining companies bring their own capital to the project, so the UJV may require relatively little additional project finance. A UJV enables each party to easily repatriate cash and service its own financing obligations.

With an increased focus on supply chain efficiencies, more sophisticated structures are being developed to hold and operate large scale mining projects – from pit to port, and ultimately to the customer. These structures can span multiple countries, involve varying equity parties at different stages of the chain, and combine UJVs and traditional company structures.

Various tax planning issues will arise when shaping such structures – notably pricing. As the commodity moves through the supply chain, the appropriate pricing mechanism must be determined, because global transfer pricing rules require borders. Transfer pricing may help determine the appropriate value of the ore at the taxing point, to calculate resource royalty taxes based on the commodity value. Advanced pricing agreements provide additional certainty, by enabling the mining company to negotiate transfer pricing rates and methodologies with revenue authorities.

Resource nationalism sweeping the world

‘Resource nationalism’ is a creeping phenomenon as cash-strapped governments seek to maximize revenues from their natural resources, with royalties sometimes stretching to a double-digit percentage of sales income. These royalty rates are susceptible to sudden increases – particularly in less stable economies, or following national elections. Even developed countries such as Australia have raised resource royalties, as governments seek to offset lower tax revenues in the global downturn. In the most extreme cases, the entire assets of a mine have been seized with little or no prior warning. By keeping an up-to-date barometer of the political climate, mining companies can stay informed of any changes well in advance. By staying actively involved in the development of resource tax policy, companies can help shape resource regimes

CASE STUDY

17MINING UPDATE


REGU

LATI

ON Tax incentives add value to a project

Tax concessions and incentives are often used to attract investment and encourage the development of mining projects. Incentives may be agreed up front at the early planning stages, to help support project economics and the final decision to mine. Incentives are also commonly confirmed at a later stage to sweeten the project outcomes.

Key tax incentives can include:

• Resource royalty holidays or lower rates of corporate income tax; for example, as a reward for locating project components in special zones or regions.

• Research and development (R&D) concessions to provide additional tax deductions or cash grants, to encourage reward and innovation in the development or operation of elements of the project.

• Investment allowances that provide additional deductions for capital expenditure.

• Generous accelerated tax depreciation write-off rates (available in some countries); for example, over a 10-year period for a project life of 30 years or more, for the express purpose of attracting investment to large-scale resource projects.

• Exemption from customs duty (for some categories of imported equipment) for major projects.

• Global trader program incentives offering lower rates of tax, to encourage mining companies to locate a project’s commodity marketing and trading activities in another country.

As favorable tax incentives can enhance project returns and accelerate cash flow, it is worth starting early to identify opportunities.

Covering every angle

KPMG member firms’ tax specialists advise clients on how they can address the commercial issues of a global mining operation. We are far more than just tax technicians and can get involved with every aspect of the project process, from feasibility studies, financial modeling and legal agreements, through to managing ongoing tax depreciation, tax incentives and royalty rates.

Projects – Managing a global workforce

Large mining projects need a large work force, generally with specialized capabilities, which may need to be sourced from overseas. In bringing overseas employees to a project the visa, migration and employee/employer tax implications should be carefully considered.

Accurate assignment cost projections should be performed to budget appropriately. Project cost centers may need to be left open following completion of the project as tax-related costs for assignees may lag completion of the project. Global mobility policies and processes may need to be implemented to ensure employees are treated consistently and fairly in accordance with company policies and local regulations.

CASE STUDY

This article was taken from Mining projects; Seeking greater value. Read the full report here

Author: Rod Henderson, Global Mining Leader – Taxation, KPMG in Australia

Connect with: Rod Henderson [email protected]

18MINING UPDATE



mailto:rbhenderson%40kpmg.com.au?subject=

EU DIRECTIVE ON DISCLOSURE OF PAYMENTS TO GOVERNMENTSAT A GLANCE

REGU

LATI

ON

Background

In June 2013 a Directive on annual financial statements, consolidated financial statements and related reports of certain types of undertakings (‘the Directive’) was approved by the European Parliament (‘EP’) and adopted by the Council of the European Union (‘CE’). It covers several aspects of financial reporting and includes mandatory public reporting on total payments to governments by country, type of payment and project.

This Directive came into force at the end of July, 2013. EU member states have until July 2015 to issue laws to enforce its application. Member States are allowed to defer application until January 1, 2016 or during the calendar year 2016. Initial application is however expected to be earlier than that in several countries. The Directive does not specify whether comparative information will be required.

Scope

The Directive applies to companies with an activity involving exploration, prospecting, development and extraction of minerals or oil & gas or logging of primary forests. It requires disclosure payments specifically related to these activities and aims to help governments of resource-rich countries to implement the EITI (Extractive Industries Transparency Initiative) principles and criteria.

This Directive requires disclosure of payments to governments in individual and consolidated reports by public interest and non-public large companies incorporated in the EU. These reports are separate from the financial statements. However they will form part of the company’s annual financial reporting obligations and will need to be disclosed in the same manner as the financial statements.

Disclosure of payments to governments above 100 thousand Euros is required by the EU Directive from listed and large private companies in the EU operating directly or through subsidiaries in

the extraction of minerals or oil and gas or logging of primary forests.

Public interest entities are defined as limited liability companies that are admitted to trading on an EU regulated market; credit institutions; insurance undertakings; or so designated by Member States because of their significant public relevance. Large companies are defined as those which at their balance sheet dates exceed at least two of the three following criteria: balance sheet total of €20 million; net turnover of €40 million or an average number of 250 employees during the financial year.

Disclosure

The disclosure is required for all payments (or series of payments) above €100,000 to governments (including local authorities organisations and companies controlled by governments) resulting from extractive or logging activities.



REGU

LATI

ON An annual disclosure is required by country and by project. A project is defined as ‘operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities with a government. None-the-less, if multiple such agreements are substantially interconnected, this shall be considered a project’.

A parent company is considered to be active in the extractive industry if any of its subsidiary undertakings (defined as an undertaking ‘controlled by the entity or its parent’) is active in the industry regardless of where those subsidiary undertakings are registered.

The Directive requires these companies to prepare a consolidated report on payments to governments (subject to certain limited exceptions).

The payments relating to extractive or logging activities (in cash or in kind) should be disclosed under the following categories:

• Production entitlements;

• Royalties;

• Dividends;

• Signature, discovery and production bonuses;

• Licence fees, rental fees, entry fees and other considerations for licences/concessions;

• Infrastructure improvements; and

• Taxes levied on the income, production or profits of companies, excluding taxes levied on consumption such as value added taxes, personal income taxes or sales taxes.

Payments made in respect of obligations arising at the entity level (e.g., income tax) are disclosed without allocation to projects.

Key Challenges

1. Companies will need to define the scope of entities and activities to be included, and ‘projects’ as the Directive leaves room for interpretation. These may be clarified to some extent in the future local implementation laws.

2. The Directive’s objectives, requirements and the areas open to interpretation are very similar to those of Section 1504 of the Dodd-Frank law (‘DF’). The European Commission will decide which third country reporting requirements are equivalent to the EU ones and therefore the companies applying them would be exempt from the Directive’s disclosure requirements. Cross-industry consultations on how to implement DF have already started and the developing practice is likely to influence how the Directive will be interpreted by the extractive industries.

3. In some countries legislations and/or contractual arrangements may prohibit public disclosure of information on transactions with governments. Breaching confidentiality clauses can lead to the loss of licenses and may be considered in some countries as a criminal offence. The Directive does not provide an exemption of disclosure on these grounds.

4. Companies will need to develop policies to enable consistency of application (e.g., how to value a payment in kind) across all operations. Also new processes and controls will be needed at both central and operational levels to ensure consistency of application of these policies.

5. As the reporting is cash based, there will be a need to develop systems enabling tagging of specific vendors and transactions to pull together the required information. This can be a significant investment for geographically dispersed groups.

The Directive does not require audit of the disclosure on payments to governments although this might be imposed by Member States. It is likely that companies will request some form of internal or external assurance during the first year to ensure that the requirements are understood and applied correctly across its various geographical locations.

The European Commission is required to report back by July 2018 to the EP and EC on the functioning of this Directive and one of the points to be considered is whether or not the Report on payments to governments should be audited. It will also report back on its possible extension to

other sectors and proposing a new legislation regarding conflict minerals.

Disclosure requirements of payments to governments for extractive and logging companies listed in regulated markets are also included in another directive on harmonisation of transparency requirements, currently pending approval from the CE.

Author: Jimmy Daboo, Global Head of Audit, Energy & Natural Resources, KPMG in the UK

Connect with: Jimmy Daboo +44 20 7694 3587

20MINING UPDATE


mailto:jimmy.daboo%40kpmg.co.uk?subject=

KPMG’s Global Mining Network provides mining professionals with access to thought leadership, webcasts and podcasts. Information can be accessed for the Americas, Europe, Middle East and Africa and Asia Pacific. In addition, webcasts are held across different time zones.

Please see www.kpmg.com/mining for further details of the full network.

To access recordings of recently hosted webcasts, click the links below:

Guiding You Through The Project Lifecycle

October 2013

Led by Rodney Nelson, Global Mining Leader – Projects and Chris van der Merwe, Associate Director from KPMG in South Africa.

This webcast explores what mining companies need to consider when planning, executing and implementing investments in new projects.

GLOBAL MINING INSTITUTE

UPDA

TES

Guiding You Through The Project Lifecycle

October 2013

Led by Augusto Patmore, who has over 15 years of experience in managing and delivering mining and infrastructure projects, from KPMG in Canada.

This webcast explores what mining companies need to consider when planning, executing and implementing investments in new projects.

Optimizing Cost Performance In An Uncertain World

July 2013

This webcast explores strategies which promote excellence in cost management and modelling to enhance performance.

21MINING UPDATE


www.kpmg.com/mining

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/guiding-you-through-project-lifecycle-emea.aspx

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/mining-guiding-you-through-project-lifecycle-amr.aspx

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/optimizing-cost-performance-mining.aspx

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/optimizing-cost-performance-mining.aspx

COMMODITIES

UPDA

TES

COPPER

Date Broker House 2011 2012 2013E 2014E 2015E 2016E

22 Oct 13 J.P. Morgan - - 3.3 3.3 3.4 3.4

17 Oct 13 BMO Capital Markets

- - 3.3 3.3 2.9 2.7

07 Oct 13 Morgan Stanley - 3.6 3.3 3.2 3.1 3.3

02 Oct 13 Roth Capital Partners

4.0 3.6 3.3 3.3 3.3 3.3

10 Sep 13 BMO Capital Markets

- 3.6 3.3 3.3 2.9 2.7

05 Sep 13 Barclays - - 3.3 2.9 3.4 3.0

09 Aug 13 CIMB Research - - 3.4 3.6 3.4 -

Average consensus price estimates (US$/lb)

4.0 3.6 3.3 3.2 3.2 3.0

Prices for 2011 and 2012 are actual figures

MET COAL

Date Broker House 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Sep 13 BREE 289.0 210.0 159.0 159.0 165.0 169.0 171.0 173.0

17 Oct 13 BMO Capital Markets

- 210.0 159.0 155.0 160.0 170.0 175.0 164.0

07 Oct 13 Morgan Stanley - 210.0 159.0 174.0 195.0 200.0 185.0 180.0

21 Aug 13 J.P. Morgan Cazenove

- - 156.0 160.0 175.0 160.0 160.0 160.0

07 Oct 13 Credit Suisse - 210.0 159.0 163.0 173.0 178.0 180.0 165.0

10 Jun 13 VTB Capital 289.0 210.0 165.0 175.0 190.0 200.0 200.0 200.0

Average consensus prices (US$/t)

289.0 210.0 159.5 164.3 176.3 179.5 178.5 173.7


LATEST COMMODITY BULLETINS

In this section you will find links to our most recent Commodity Bulletins as well as a snapshot of forecast commodity prices.

Click on the thumbnails below to read the full bulletin:

Commodity ins ights

Bulletindecember 2013

Platinum (2Q, 2013 and 3Q, 2013)

A changing labor landscapeAs expected the year following the marikana event has been a bumpy period for the Platinum industry in south Africa. Early in 2013, government and labor exerted pressure on Anglo American Platinum (Amplats), the largest global producer of platinum, to terminate its plans to substantially reduce headcount at a number of operations. this reduction was in line with a portfolio review commissioned by its parent company, Anglo American Plc. this intervention by government, with even a threat of revoking its mining licences, sent a clear message to other producers to avoid contemplating large scale headcount reductions given the volatile social-economic environment. these actions have brought widespread negative reaction from many investors given the inability of many of these producers to fund losses over the medium to long term. What has also become evident to all is the key role the industry plays on the fiscus as the reduction in mining revenues has adversely impacted tax revenue, necessitating the need for government to commence cost cutting initiatives to reduce its own fiscal spending.

Pgm prices initially rallied given the production uncertainty but have gradually softened over the year despite

intermittent industrial action as producers struggled to stabilize the labour environment. Producers have however received some relief in the form of a weaker Rand to Us$ exchange rate on their local cost base. there has also been a shift towards extracting costs through operational efficiencies as producers moved away from large scale head count redundancy programs.

the Association of mineworkers and Construction Union (AmCU) also consolidated its position during the year and by August all three main producers had signed recognition agreements making AmCU the dominant union over the national Union of mineworkers (nUm) in the Platinum industry in south Africa. tension between these two unions continues to persist. there is also support amongst a number of stakeholders for a centralised bargaining agreement similar to that in other industries to be established as a matter of urgency. Additionally, a holistic revision of the existing labor model, including regulation, needs to be undertaken soon to create a sustainable labour operating platform for the industry. needless to say we anticipate the next six months will continue to be bumpy as parties seek to find a workable solution.

Commodity outlook1,2,3 Concerns around labor issues and rational use of available capacities in south Africa raised the average platinum prices to about Us$1,638/oz during 1Q, 2013. however, a drop in gold prices in April 2013 pulled down the price, following which the metal became unresponsive to supply risks and declined to an average of about Us$1,472/oz during 2Q, 2013

(a q-o-q decline of 10 percent). Platinum prices further slipped by 1 percent q-o-q to Us$1,456/oz during 3Q, 2013. however, palladium prices stayed at about Us$700/oz for most of the first three quarters of 2013. speculations in net longs on nymEX reached all-time highs with speculators believing the market to be in a long-term deficit. the global palladium prices

Copper | diamond | gold | iron ore | metallurgical Coal | nickel | Platinum | thermal Coal | Uranium

1 “Platinum 2013 interim review”, Johnson matthey, november 20132 Bmo Capital markets Canada – global Commodities Research – Commodity Canvas – Q4/13: home on A Range(Report), 17 october 2013, via thomson Research/

investext accessed 26 november 20133 VtB Capital – VtB Capital: Base And Precious metals Watch – september 2013 growth Patterns Remain Volatile, 15 october 2013, via thomson Research/investext

accessed 26 november 2013

© 2013 KPmg international Cooperative (“KPmg international”). KPmg international provides no client services and is a swiss entity with which the independent member firms of the KPmg network are affiliated.

IRON ORE MET COAL NICKEL

THERMAL COAL PLATINUM DIAMOND

22MINING UPDATE


http://portal.ema.kworld.kpmg.com/Adv/GM/LOB04/go_enr_lib/M01/IB_018_Energy%20Bulletin_Iron_V3_Web.pdf

http://portal.ema.kworld.kpmg.com/Adv/GM/LOB04/go_enr_lib/M01/IB_018_Energy%20Bulletin_Met%20Coal_V3_Web.pdf

http://portal.ema.kworld.kpmg.com/Adv/GM/LOB04/go_enr_lib/M01/IB_018_Energy%20Bulletin_Nickel_V4_Web.pdf

http://portal.ema.kworld.kpmg.com/Adv/GM/LOB04/go_enr_lib/M01/IB_018_Energy%20Bulletin_Thermal%20Coal_V4_web.pdf

http://portal.ema.kworld.kpmg.com/Adv/GM/LOB04/go_enr_lib/M01/IB_018_Energy%20Bulletin_Thermal%20Coal_V4_web.pdf

http://portal.ema.kworld.kpmg.com/Adv/GM/LOB04/go_enr_lib/M01/IB018_Energy%20Bulletin_Diamond_V2_Web.pdf

UPDA

TES

IRON ORE

Date Broker House 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F

03 Nov 13 BMO Capital Markets - - 133.0 120.0 115.0 115.0 115.0 108.0

24 Oct 13 Jefferies - - 130.0 125.0 105.0 95.0 90.0 90.0

28 Oct 13 BB&T Capital Markets - - 133.7 115.0 110.0 - - -

08 Oct 13 J.P. Morgan - - 132.0 115.0 105.0 100.0 80.0 80.0

08 Oct 13 Credit Suisse - - 130.0 104.0 90.0 93.0 90.0 90.0

10 Jul 13 Numis securities - - 125.0 105.0 99.0 95.0 80.0 80.0

Average consensus price (US$/t) 167.8 128.5 130.6 114.0 104.0 99.6 91.0 89.6


THERMAL COAL

Date Broker House Japanese Financial year (JFY) contract consensus prices

Report Date Report Considered 2011 2012 2013F 2014F 2015F 2016F 2017F

07 Oct 13 Morgan Stanley - - 95.0 90.0 105.0 105.0 100.0

17 Oct 13 BMO Capital Markets - - 95.0 88.0 89.0 90.0 94.0

29 Jul 13 VTB Capital - - - 90.0 95.0 100.0 115.0

Sep 13 BREE RES September 2013 - - 95.0 88.0 84.0 87.0 92.0

Average consensus price (US$/t) 129.9 115.0 95.0 89.0 93.3 95.5 100.3

Date Broker House Newcastle spot consensus price

Report Date Report Considered 2011 2012 2013F 2014F 2015F 2016F 2017F

21 Aug 13 J.P. Morgan Cazenove - -- 83.0 84.0 87.0 95.0 95.0

12 Sep 13 Bell Potter securities - - 89.0 97.0 99.0 102.0 90.0

10 Oct 13 Credit Suisse - - 84.0 85.0 88.0 95.0 100.0

01 Oct 13 CIMB Research - - 86.0 97.0 110.0 116.0 105.0

30-Sep-13 BMO Research - - 95.0 91.0 94.0 95.0 95.0

Average consensus price (US$/t) 129.6 102.4 87.4 90.8 95.6 100.6 97.0


23MINING UPDATE


UPDA

TES

PLATINUM

Date Broker House 2011 2012 2013F 2014F 2015F 2016F 2017F

03 Nov 13 BMO Capital Markets - - 1,490.0 1,400.0 1,500.0 1,500.0 1,449.0

22 Oct 13 J.P. Morgan - - 1,533.0 1,676.0 1,850.0 2,100.0 2,100.0

15 Oct 13 VTB Capital - - 1,500.0 1,600.0 1,750.0 1,800.0 1,800.0

11 Oct 13 Societe Generale - - 1,520.0 1,590.0 1,650.0 1,700.0 1,700.0

27 Oct 13 Morgan Stanley - - 1,518.0 1,639.0 1,825.0 1,970.0 2,070.0

Average consensus estimates (US$/oz)

1,571.0 1,554.0 1,512.2 1,581.0 1,715.0 1,814.0 1,823.8


GOLD

Date Broker House 2011 2012 2013F 2014F 2015F 2016F 2017F LT

1 Dec 13 EIU - 1,668.0 1,421.0 1,331.0 1,251.0 - - -

1 Sep 13 BREE Australia - 1,668.0 1,439.0 1,275.0 1,266.0 1,308.0 1,346.0 1,375.0

3 Nov 13 BMO Capital Markets - - 1,425.0 1,275.0 1,200.0 1,200.0 1,122.0 1,122.0

15 Oct 13 VTB Capital Markets - 1,668.0 1,420.0 1,425.0 1,500.0 1,500.0 1,500.0 1,500.0

11 Oct 13 Societe Generale - 1,668.0 1,426.0 1,125.0 1,100.0 1,050.0 1,050.0 1,050.0

28 Oct 13 BB&T Capital Markets - 1,669.0 1,428.0 1,300.0 1,400.0 - - -

27 Oct 13 Morgan Stanley - 1,669.0 1,420.0 1,313.0 1,300.0 1,275.0 1,250.0 1,348.0

8 Oct 13 J.P. Morgan - 1,669.0 1,426.0 1,401.0 1,450.0 1,451.0 1,300.0 1,300.0

Average Consensus estimates (US$/oz)

1,571.0 1,668.4 1,425.6 1,305.6 1,308.4 1,297.3 1,261.3 1,282.5


24MINING UPDATE


UPDA

TES

ALUMINIUM


25 Nov 13 BMO Capital Markets - - 0.8 0.8 0.9 1.1 1.1

11 Nov 13 Renaissance Capital - - 0.9 0.9 0.9 0.9 1.0

31 Oct 13 J.P. Morgan Cazenove - - 0.9 0.9 0.9 - -

28 Oct 13 Laurentian Bank Securities - - 0.8 0.9 0.9 1.0 1.0


9 Aug 13 CIMB Research - - 0.9 0.9 0.9 - -

29 Jul 13 VTB Capital - - 0.9 0.9 1.0 1.1 1.1

Average Consensus estimates (US$/lb)

1.1 0.9 0.9 0.9 0.9 1.0 1.0


NICKEL


25 Nov 13 BMO Capital Markets - - 6.8 7.3 8.0 8.5 9.0

11 Nov 13 Renaissance Capital - - 6.9 7.5 7.8 7.8 8.1

31 Oct 13 J.P. Morgan Cazenove - - 6.8 6.2 6.4 - -



9 Aug 13 CIMB Research - - 7.0 7.6 9.4 - -

29 Jul13 VTB Capital - - 7.1 7.7 8.4 9.1 9.5

Average Consensus estimates (US$/lb)

10.4 8.0 6.9 7.2 7.9 8.3 8.6


25MINING UPDATE


UPDA

TES ZINC


31 Oct 13 J.P. Morgan - 0.9 0.9 1.0 1.0 - -


28 Oct 13 BB&T Capital Markets 1.0 0.9 0.9 0.9 0.9 - -

27 Oct 13 Morgan Stanley 0.9 0.9 0.9 1.0 1.0 1.0

10 Oct 13 Barclays - - 0.9 0.9 1.0 - -

03 Nov 13 BMO Capital Markets - - 0.9 0.9 0.9 1.1 -

02 Oct 13 Roth Capital Partners 1.0 0.9 0.9 0.9 1.1 - -

Avergae consensus estimates (US$/lb)

1.0 0.9 0.9 0.9 1.0 1.0 1.0


26MINING UPDATE


CON

TACT

S WE’VE GOT MINING ON OUR MINDSFor further information about KPMG’s Mining practice please contact the professionals listed below or visit www.kpmg.com/mining To access the first edition of KPMG’s Mining Update please click here

Rodney Nelson

Director

KPMG in Australia

E: [email protected]

Rama Ayman

Partner

KPMG in the UK


Dane Ashe

Partner

KPMG in South Africa


Alex Plavsic

Partner

KPMG in the UK


Hiranyava Bhadra

Principal Advisory

KPMG in the US


Jon Richards

Director

KPMG in the UK


Rohitesh Dhawan

Associate Director

KPMG in South Africa


Vincent Neate

Partner

KPMG in the UK


The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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STRATEGY GROWTH COMPLIANCEPERFORMANCE SUSTAINABILITY

David Waldron

Partner

KPMG in Canada


Jeremy Kay

Partner

KPMG in the UK


http://www.kpmg.co.uk/creategraphics/08_2013/Mining%20SWF/KPMG%20DOCUMENT/index.html

kpmg mining update - edition 2

Economy & Finance