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Mining Explained

THE total number of mines in the world is huge. However, the exact figure depends on how a mine is defined. If small-scale mines are excluded (of which there are 8,300 in China alone) and only industrial-scale operations are counted, there are some 2,500 metal-producing mines.

The average life of these mines varies dramatically a gold mine averages some eight years whereas a copper mine can soldier on for close to 30 years. In South Africa there are several diamond mines that have produced for 50 years, and are expected to produce for another 50 years.

No reliable figures exist for industrial minerals and aggregate quarries. However, in the US, there are some 100 metal mines, 900 mines and quarries producing industrial minerals, and 3,320 quarries are producing crushed rock.

Assuming that there is a similar relationship elsewhere, there would be some 25,000 mines in the world producing industrial minerals, and almost 100,000 quarries producing aggregates for construction purposes.

The existence of mineable deposits and their frequency and abundance in nature, corresponds closely with the chemical composition of the earth's crust.

Silver, for instance, occurs in nature 19 times as frequently as gold. If we imagine a pyramid with high grade at the apex and low grade at the base, then we can easily see that as we lower the grade that is economic to mine, the available reserve tonnages goes up.

We should not be surprised to find the world is awash in low-grade copper deposits that also include small amounts of gold and silver.

The fact is that mineable mineral deposits are few and far between, and still fewer people will bring a deposit into profitable production. The chances of bringing a raw prospect into production have been estimated at 1 in 5,000-10,000. Some deposits eluded recognition for several decades, despite intermittent exploration of the same showings by several companies and, in many cases, claims were allowed to lapse.

There are many instances in which prospectors have revived old prospects and induced companies to drill just one more time before a discovery was made.

Resource development in the 20th century has been marked by the growth of large-scale mining and technological development that enabled the use of economies of scale.

Back in 1887 the development of the cyanide process made possible the mining and recovery of lower-grade gold-bearing ores and caused South Africa to overtake the US as the world's leading gold-producing nation.

Over the next 100 years, technology permitted low-gold grade ores to be mined ever more cheaply. Indeed, the rise in metals consumption during the past hundred years was been little short of awesome.

Most dramatically, the mined output of bauxite (the raw material for alumina, and hence the new metal aluminium) soared from barely 100,000 t/y (tonnes per year) in 1900 to over 125 Mt/y (million tonnes per year) by the end of the 20th century.The rate of copper mined between 1900 and 1999 grew from around 0.5 Mt/y to 12 Mt/y. The rise in precious metals output has also been noteworthy, with gold production, for example, rising during the 100-year period from 400 t/y (12.9 Moz) to 2,500 t/y (80.4 Moz).

The total volume of ore produced globally is almost 17,000 Mt, excluding sand and gravel. Metals account for barely one quarter of this amount, while crushed rock (mainly limestone) is by far the dominating commodity (by volume), accounting for some 7,000 Mt/y (40% of the total).

This is not to suggest that we are running out of metals just yet. Already-identified ore reserves, as a multiple of recent annual production rates, represent almost 200 years for bauxite, 30 years for

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copper and 20 years for gold.

Few mining companies have the financial resources to delineate ore reserves too far into the future. Potash Corp of Saskatchewan is an exception, its mine reserves (at current production rates) are sufficient for 200 years; as close to an annuity for shareholders as it is possible to get.

As a result, most of the world's store of metals and minerals remain undiscovered. Moreover, as (or rather, when) the world's reserves of a particular commodity become depleted, the price will inevitably rise (unless there is a readily available substitute). This, in turn, will make lower-grade ore economic, boosting the available reserves.

Complicating the issue of scarcity is to what extent the extracted metal or mineral is actually consumed. With modern technology (and the increased value of the raw material) we are able to recover commodities that have already been used.This recycling is of increasing importance in the supply/demand balance of many metals.

Mined metals and minerals (excluding oil and gas) have an annual value of some US$350 billion, split, roughly equally, between coal, metals and aggregates/industrial minerals.

Mining Glossary

Adit - an almost horizontal entrance to a mine.

Alloy a compound of two or more metals.

Alluvium deposit of sedimentary material laid down in river beds, lakes, flood plains or at the base of mountain slopes.

Assay a chemical test performed on a sample of ores or minerals to determine the amount of valuable metals contained.

Assay map plan view of an area indicating assay values and locations of all samples taken on the property.

Assessment work the amount of work specified under mining law that must be performed each year in order to retain legal control of mining claims.

Backfill waste material used to fill the void created by mining.

Back sample rock samples collected from an excavated area for the purpose of determining grade.

Base metal this is, strictly, the oxide form of any metal but is commonly referred to as being the non-precious metals that are traded on the London Metal Exchange.

Call factor the fraction of an ore reserve that is successfully mined.

Carat the unit of weight for gemstones (one carat weighs 200 mg).

Carlin type deposit very fine grain gold. The Carlin Trend is situated in northeastern Nevada and consists of a 60km northwest/southeast line of major gold deposits.

CIL - carbon-in-leach process which integrates leaching and carbon-in-pulp into a single unit process operation.

Contact a geological term used to describe the line or plane along which two different rock formations meet.

Contango - a condition in which distant delivery prices exceed spot prices, often due to the costs of storing and insuring the underlying commodity. The opposite situation is called backwardation.

Cut-off grade The grade below which mineralisation is not included in the assessment of ore

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resources/reserves.

Cyanidation a method using a weak cyanide solution by which gold or silver grains are extracted from ore.

Deposit a body of rock containing a concentration of minerals.

Development drilling drilling to establish accurate estimates of mineral reserves.

Dilution the necessary mining of waste rock, along with ore. Measured as the ratio of waste rock to the total amount of rock mined.

Drift a horizontal underground development that follows along the length of a rock formation as opposed to a crosscut, which crosses the rock formation.

Enechelon - a geologic feature that follows a zigzag fault pattern.

EPC - engineering, procurement and construction.

EPCM - engineering, procurement and construction management.

Feasibility study an economic study assessing whether a mineral deposit can be mined profitably.

Gabbro a dark, basic, coarse-grained igneous rock.

Garimpeiro - clandestine prospector or miner.

Garimpo - mine, claim or prospect.

Gross value the theoretical value of ore determined by applying the assessed grade of metal(s) in the ore by the relevant current market price.

High grade rich ore.

Induced polarisation - a geophysical method and developed for ore exploration.

JORC code widely accepted standard for reporting mineral resources and ore reserves established by the Australasian Joint Ore Reserves Committee.

Kimberlite pipe an orebody shaped like a flute or pipe which can contain diamonds.

Laterite ore ore occurring in the form of soil residue containing secondary oxides of metal, often associated with nickel.

Leaching a chemical process for the extraction of valuable minerals from ore.

Lode a mineral deposit in solid rock.

Longwall a mining method (common on South African gold mines and European coal mines) involving straight, and narrow, working faces.

Measured resource a resource whose size and grade have been estimated from sampling at intervals that are spaced closely enough together so that the deposit's continuity is essentially confirmed.

National Instrument 43-101 - Canadian rule that governs how issuers disclose scientific and technical information about their mineral projects to the public.

Noble metal a metal or alloy, such as gold, that is highly resistant to oxidation and corrosion.

Nomad A firm or company which has been approved by the London Stock Exchange as a

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nominated adviser for the Alternative Investment Market (AIM).

Open pit a mine that is entirely on the surface. Also referred to as open-cut or an open-cast mine (the latter normally for coal and industrial mineral operations).

Option an agreement in which the buyer has the right to exercise by buying or selling an asset at a set price on or before a future date. The seller has an obligation to honour the terms of the contract.

Paste-fill back-filling of mined-out underground areas with finely ground rock in a slurry.

PPM parts per million, also gram/tonne

PPB - parts per billion.

Primary deposits valuable minerals deposited during the original period of mineralisation, as opposed to those deposited as a result of alteration or weathering.

Probable reserves valuable mineralisation that is not yet sampled sufficiently to be proven.

Put option - an option which gives the holder the right but not the obligation to sell shares (or other financial instruments) at a fixed price on or before a given date.

Reserve the part of a mineral resource that can be mined profitably.

SAG mill semi-autogenous grinding mill.

Spot price current delivery price of a commodity traded in the spot market.

Stope an excavation in a mine from which ore is extracted (usually in a longwall).

Strike length the distance and direction along which drilling results have established mineralisation.

SX/EW - solvent extraction, electrowinning.

Tailing material rejected from a mill after most of the recoverable valuable minerals have been extracted.

Trend the direction, in the horizontal plane, of a linear geological feature, such as an ore zone.

UTEM deep electromagnetic survey.

Vein a fissure, fault or crack in a rock filled by minerals that have travelled upwards from some deep source.

Warrant - a derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a sweetener to entice investors.

Mining 101Metals and Minerals Geology

Exploration Mining

Processing Marketplace

1. Metals and Minerals

The building blocks of the earth are called elements, which are substances that cannot be broken down by chemical or physical action into simpler entities. Elements that are 'workable' (eg malleable) are termed metals (they are also usually good conductors of heat and electricity).

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Of the 92 elements, eight account for 98% of the composition of the crust (the earth's outer layer; see later): oxygen (46.5%), silica (27.5%), aluminium (8%), iron (5%), calcium (3.5%), sodium (3%), potassium (2.5%) and magnesium (2%). By contrast, gold constitutes less than 0.0000004% of the earth's crust.

Elements bond together in chemical compounds of definite ratios to form solid crystalline substances known as minerals, of which there are many thousand different types. (Coal is a mineral, mainly comprising the carbon element.)

Rock is a solid mass of mineral grains, and there are four main rock-forming mineral groups:

Silicates - contain silicon and oxygenOxides - the elements bond to oxygenSulphides - " " " " sulphurCarbonates - " " " " carbon/oxygen.

The most common minerals are all oxides: SiO2 (comprising 59.1% of the earth's crust), Al2O3 (15.2%), CaO (5.1%) and FeO (3.7%).

Where minerals are sufficiently concentrated (see later), they are called 'mineral deposits' and these become 'ore deposits' when the elements within the mineral can be recovered economically. Mining is usually about the recovery of the 'metal' elements.

These concentrations are usually measured as the proportion of the constituent metal in the overall deposit (this might include several different minerals but the measurement will exclude the surrounding 'waste' rock). For the less valuable metals (copper, lead etc) this is usually measured as a few parts per hundred (eg 3% copper; Cu) while the precious metals will be measured in terms of parts per million (eg 6 grams/tonne gold; Au). Note that there are 1,000 grams in a kilogram and 1,000 kilograms in a tonne, so that 1 gram/tonne = 1 ppm.

The search for diamonds is akin to looking for the proverbial 'needle in a haystack'. Diamond grades are typically 5 carat per 100 tonne (the normal 'unit' of measurement), ie 1 gram for every 100 tonnes (1 part per 100 million). Because of the huge range in the value of diamonds (based on size, colour and clarity), grades are often given in terms of value. A typical mined-diamond value is US$200/carat, ie an ore grade of only US$10/tonne in the example above. Note also that if the size of the average stone is 1 carat, then there will only be one stone per 20-tonne truck !

As an aside, it is often said that only one kimberlite pipe in one hundred is diamondiferous, and only one diamondiferous pipe in a hundred is economic to mine.

Metals are often categorised into groups to reflect common usage or properties.

Precious (Noble) Metals: These are resistant to weathering (ie they do not rust) and are usually mined in their native (ie pure, elemental) state. Examples are gold, silver and the platinum-group metals (PGMs).

Base Metals: So called because they are capable of combining with an acid to form a salt, eg:

Copper Chalcopyrite (CuFeS2) and Chalcocite (Cu2S)

Lead Galena (PbS), Anglesite (PbSO4) and Cerusite (PbCO3)

Zinc Sphalerite (ZnS) and Smithsonite (ZnCO3)

Nickel Pentlandite (2FeS.NiS) and laterites

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Ferrous Metals: In addition to iron itself, this category includes those metals that have a strong chemical affinity with iron, eg:

Chromium Chromite (FeCr2O4)

Cobalt Cobaltite (CoAsS) and Smaltite (CoAs2)

Molybdenum Molybdenite (MoS2)

Manganese Braunite (Mn2O3), Hausmanite (Mn3O4) and Pyrolusite

Non-Ferrous Metals: These are the metals that have no affinity with iron (and also included the base metals), eg:

Aluminium Bauxite (Al2O3.2H2O)Magnesium Magnesite (MgCO3) and brinesTin Cassiterite (SnO2)

Speciality Metals: These are those metals whose unusual (exotic) properties make them valuable in specific usages, eg:

Cadmium

Greenockite (CdS), which is found as a coating on zinc ores, and is usually mined by-product of base-metal sulphides

Mercury Native metal and as Cinnabar (HgS)Titanium Ilmenite (FeO.TiO2) and Rutile (TiO2)Zirconium Zircon sand and Baddeleyite

Other Mined Minerals: These are those valuable minerals that either can not be characterised as metals (eg coal) or where the mineral is used in its mineral form without extracting the metal (eg salt, which is sodium chloride):

Industrial minerals

Salt, limestone, marble etc

Energy minerals

Coal, oil, gas and uranium

Gemstones Diamonds, rubies etc

2. Geology

The consensus amongst scientists is that our solar system began about 5,000 million years ago, and planet Earth formed from a superheated cloud of dust and gas (following the 'Big Bang'). The Earth is believed to comprise a deep interior (the core), surrounded by a zone of heavy rock (the mantle) and a thin outer skin (the crust). Cooling from the core outwards sets up convection currents, and as these reach the crust the patterns they set up have been instrumental in forming a series of interlocking crustal plates.

Plate tectonics is a relatively new theory and has revolutionised the way geologists think about the Earth. The size and position of the plates change over time. The edges of the plates, where they move against each other (the so-called mobile belts) are sites of intense geologic activity; such as earthquakes, volcanoes and mountain building (and mineralisation). Periods of mountain-building are referred to as orogeny, the most recent of which started 200 million years ago (about the time the first mammals appeared).

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Where plates 'collide', one plate might slide beneath (subduction), or ride above (obduction), another plate. Such movements are often accompanied by the intrusion into the crust of molten rock (magma) from the mantle. The magma cools to form igneous rock.

There are broadly two types of igneous rock:Light (felsic) rocks that are rich in silica and aluminium, eg granites.Dark and heavy (mafic) rocks rich in iron and magnesia, eg gabbro.

Where the magma reaches the surface of the crust it is extruded and cools very quickly as lava to form fine-grained volcanic rocks, eg basalt.

The igneous activity associated with mobile belts is often accompanied by the introduction of hydrothermal fluids rich in minerals, giving rise to some of the world's biggest mineral deposits (eg the copper deposits of the Andes). A present-day example of such hydrothermal activity is in the South Pacific where 'black smokers' on the seafloor are currently depositing metal sulphides along the junction of two tectonic plates.

Over geological time, some plates fuse together and new ones form, and, away from the edges of existing plates, the older rocks form the ancient 'basement', or cratons (also termed shields). 'Fossilised' mobile belts are preserved in cratons as Greenstone belts, which are a major source of gold deposits (eg in Western Australia, the Canadian Shield and West Africa).

The crust and its plates are subject to constant erosion and the resultant material is re-deposited as sediment in rivers, lakes and seas, eventually consolidating into layers or strata sedimentary rocks.

These sedimentary rocks fall into two categories:

Clastic

Fragments brought together by ice, water or wind (eg sandstone).

Chemical

Precipitation of dissolved materials (eg forming limestone); with evaporates (eg rock salt from sea water) being a particular type.

In many areas of the globe, sedimentary rocks cover the basement and cratons entirely. Minerals contained in the sediments may accumulate in economic quantities.

Over millions of years, sedimentary rocks are subject to heat and pressure as a result of igneous intrusions, mountain-building activity or the weight of the overlying sediments, to form metamorphic rocks. Hence a limestone becomes a marble, shale becomes a slate, sandstone becomes a quartzite, etc. The gold deposits of South Africa's Witwatersrand and the iron-ore deposits in the Pilbara district of Western Australia are examples of sedimentary deposits that have been metamorphosed.

According to the amount of heat and pressure, the original sediments can eventually be metamorphosed to schists, and volcanic/igneous rocks can be metamorphosed to form gneisses. Metamorphism often remobilises and reconcentrates the contained metals to form new deposits. The world's cratons consist entirely of metamorphic rocks.

General Deposit Types

Sedimentary deposits can be in the form of lenses and pods, often deposited along bedding planes or in fractures, faults and fissures. Under certain conditions, eg warm climate and shallow seas, sediments accumulate in large basins, and minerals become increasingly concentrated as salts as a result of evaporation. Many of the world's large deposits of potash, nitrate, phosphate and rock salt have formed in this fashion.

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Deposits in igneous rocks can also occur as lenses and pods, and in fractures, faults and fissures. They can also be distributed through the rock as fine disseminations and in small quartz veinlets as stockworks (typical of porphyry copper). Such deposits tend to be of large size and low grade. They often possess a surface (or supergene) zone that has been enriched in metals as a result of weathering. Beneath this zone, the ore unaffected by weathering is termed primary (or hypogene).

Massive deposits (see below) are of higher grade and consist almost entirely of sulphide minerals. They are generally associated with metamorphic terrain. Where their deposition is associated with volcanic activity, they are termed volcanic massive sulphides (VMS). Where deposits associated with volcanic activity are stratified they have been referred to as sedimentary exhalative (sedex) deposits.

A number of the world's most important deposits of nickel, chromite, copper and platinum occur in mafic rocks (see above) in layered igneous intrusions. The metals occur at distinct horizons, reflecting the pressure and temperature at which they formed as the magma cooled down. The platinum and palladium deposits of the Bushveld complex in southern Africa are of this type.

One particular type of mafic rock, kimberlite, is the world's principal source of diamonds. Diamonds are formed (from carbon) in the mantle under extreme temperature and pressure, and are carried to the surface in kimberlite pipes. These occur throughout the world but very few contain diamonds, and even fewer have diamond concentrations of economic interest (as noted above).

Alluvial deposits are formed where material resulting from weathering and erosion is transported by rivers and streams and re-deposited. The mineral must be chemically stable and physically resistant to survive the process (restricting such deposits to precious metals, diamonds and other gemstones). Alluvial deposits are relatively recent in age and are generally unconsolidated.

Laterite deposits are a product of tropical weathering and comprise a mixture of oxide and hydroxide minerals and clays. Bauxite, the chief ore of aluminium, is a laterite, and there are vast deposits in Brazil and Guinea. There are also important deposits of nickel laterite (eg in New Caledonia and Cuba).

Where mineral deposits are formed at the same time as the host rock they are termed syngenetic. Where they have been introduced afterwards, they are termed epigenetic.

Deposit Summary

Diamond Pipes: Formed at least 150 km below the surface (where temperatures and pressures are extreme enough to create diamonds, rather than graphite or coal, from the element carbon). These kimberlite mineral accumulations only become economic when they are brought to the surface by volcanic activity.

Epithermal: Formed by hydrothermal volcanic activity that pushes magma (and the contained minerals) through vents (to form extensive vein systems). An important source of gold and silver, normally as 'native' metal rather than in a mineral (and are the most likely type of deposit for high-grade, 'bonanza'-type discoveries).

Laterites: A deeply weathered mixture of oxide and hydroxide minerals and clays (usually found in the tropics). These form the main orebodies for aluminium, and an increasingly important source of nickel (although recovery of the latter is a still problematic process).

Lode: Found in Greenstone belts (see above), these deposits are an important source of precious metals and cluster around large regional fault zones. Although usually narrow and inconsistent (and so hard to identify) they can extend to great depths.

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Magmatic: As molten rock cools, the minerals crystallise and sink to the base. They are usually tabular, or lens-like, in shape, and form many of the world's great base-metal sulphide deposits, especially copper and nickel (and also some oxide deposits of iron, titanium and chrome).

Massive: Nothing to do with size, rather a mineralisation (made up almost entirely of sulphides) that is homogeneous and conforms to the host rock's structure (usually indicating that it was formed at the same time). These orebodies are relatively easy to understand and mine.

Placer: Minerals that have been eroded from the primary source and transported (normally by water action) and then deposited in a sedimentary bed. The mineral must be chemically stable and physically resistant to survive this process (restricting such deposits to precious metals and gemstones).

Porphyry: Typical of deposits (especially copper) formed by igneous activity, with both the intrusion and host rock being severely fractured, with the mineralisation forming veins. The deposits are usually large but low grade, although subsequent leaching and precipitation can form areas of substantially higher grades (supergene enrichment).

3. Exploration

As mentioned above, minerals must group in a sufficient concentration if they are to be economically recovered. This circumstances that are likely to lead to this process must be understood, and suitable locations identified, before a deposit stands any realistic chance of being identified. Geologists will examine general structural maps (rock types and faulting patterns) before making a decision on where to drill.

Most of the world's mines are centred on the ancient 'shield' rocks of the Precambrian orogeny (comprising the Archaean period of 4.6 billion to 2.6 billion years ago, and the Proterozoic period of 2.6 billion to 570 million years ago). This is because the mountain-building activity, which helped concentrate many minerals, was intense in this early period of the planet's life.

The stages of exploration for these various orebodies might include:

Geophysical Surveys - Airborne evaluation of magnetic or density anomalies, which are good indications of areas prospective for mineral deposits.

Mapping - Consolidation of the surface expressions into a single plane for better understanding of the likely deposit configuration.

Sampling - Collection of stream sediments, surface boulders or earth (the latter usually from trenches dug across a prospective area). The material is then analysed to test for anomalous concentrations of metals to establish drilling targets.

Drilling - Recovery, for analysis, of either rock chips (at various depths) or cores (collection of the latter is by using diamond-encrusted circular drill bits and core barrels).

Modelling - Evaluation of grades and known structures (often using computer models) to determine the likely deposit configuration.

Infill Drilling - The drilling of extra holes to increasing confidence in the orebody model.

Feasibility Studies - Various scenarios tested (at different metals prices) to determine if the deposit can be extracted profitably. The last such study is called a 'bankable' feasibility study as it is used to secure funding.

There are various classifications for ore deposits, depending upon the certainty that the configuration is understood (this is usually a function of the number of drill holes):

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InferredEvidence suggests that there are minerals worth investigating; sometimes described as 'Potential'.

Resource

- Indicated

Initial drilling has identified that there is mineralisation but the configuration is uncertain.

- Measured

Tonnage has been calculated but drilling not sufficient to be sure of the orebody's continuity.

Reserve

- Probable

Further testing has raised the level of confidence such that initial funding can usually commence.

- Proved

Orebody is well understood, and the tonnages andgrades established beyond reasonable doubt.

4. Mining

There are four main types of mining: dredging, surface mining, underground mining and insitu mining.

1) Dredging. This is a high-volume mining technique for low-value products near a plentiful source of water. Scoops/buckets are used to extract material from shallow water (often man-made lagoons). A high-tech variation of this is undersea mining, where material is sucked from the seafloor (although the only successful application of this to-date has been for gem diamonds in shallow waters). The mining process is usually combined with the processing (typically drying and concentration) on a floating barge, which is anchored in the middle of the lagoon.

2) Surface Mining. Called 'Open-cast' if soft-rock mining (eg coal or limestone) and 'Open-pit' if hard- rock mining (eg copper and diamonds). The mining process is fundamentally different between these soft- and hard-rock operations. The former operations are usually rectangular in general shape (and advance along the seam, with waste infill behind as they advance) while the latter are oval.

Surface mines normally only extend to a depth of about 200 m, below which it is usually cheaper to extract the metal from underground. The cut-off point will depend on the economies of the two methods, with surface costs being dominated by the ore:waste (stripping) ratio, which, in turn, will depend on the shape of the orebody, the amount of overburden to be removed and the safe steepness of the wall (ie bench height v width). This latter item will depend on the type of rock and the number of fractures etc.

Hard-rock surface mining is dominated by drilling/blasting and then lifting of the broken ore either into trucks or onto conveyors for transportation to the processing plant. This lifting is usually by excavator (electric or hydraulic; with shovel or backhoe configuration) or front-end loader. The softer rocks can be recovered directly by using very powerful excavators (including the huge bucket-wheel machines).

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3) Underground Mining. Access is via vertical shafts or inclined roadways (adits). There are usually two access routes (one for men and materials, and one for the ore) for safety and for ease of ventilation (fresh air comes in one and is then exhausted out of the other).

Once at the correct depth, horizontal tunnels are driven to reach the ore deposit. These are permanent structures so require strong roof supports (often including 'bolts' into the rock to tie the layers together for strength). In contrast, tunnels into the ore deposit itself are often temporary, and so the support is less substantial. Transport for men and materials can be by train, truck or man-riding conveyor belts.

There are a multitude of different extraction techniques but the main ones are:

Room and pillar - Matrix of excavated rooms with pillars left between them to hold up the roof. This method is popular for shallow mines where the mineral is thick but of relatively low value (it is a relatively wasteful method as subsequent removal of the pillars is dangerous). This method lends itself to the use of mechanised extraction.

Longwall systems (Stoping in hard-rock mining) - The mineral (which is usually in a relatively narrow seam) is extracted as a face (advancing or retreating) between two parallel roadways. This system is very popular in coal mining; using shearers (rotating drums with teeth) or plows (a fixed, chisel-like, machine that cuts slices).

Block Caving - Tunnels are driven under the ore deposit and the rock above is fragmented (by drilling/blasting and then the rock collapsing under its own weight) and the material is drawn down through 'ore passes' (see below).

Cut and Fill - Suited to irregular ore deposits of high-value minerals, this method involves mining upwards in horizontal slices, with each slice being backfilled (usually with a concrete mix to provide a suitable floor) once the fragmented ore from above has been collected.

Depending on the mine configuration, the target mineral can be collected directly from ore passes (effectively vertical tunnels used to store rock) or lifted from the floor using load-haul-dump (LHD) vehicles. Transportation to the shaft or incline can be by train, truck or conveyor.

Ore: This is separated from the waste rock at the earliest opportunity to avoid dilution (which would involve extra cost). 'Run-of-mine' is used to describe the ore as it emerges from the mine, ie before treatment.

Waste: Although some rock can be stored underground (and is ideally used to provide roof support by grinding it and pumping it back into the excavated areas) most has to be taken to the surface.

4) Insitu Mining. There are two main types of insitu mining; solution and thermal.

Solution - Involves the injection of water down drill holes into soluble deposits (most commonly salt). The mineral-rich solution is then pumped back to the surface.

Thermal - Although only still at the research stage, it is theoretically possible to burn coal insitu (by creating cracks, then injecting oxygen and a heat source) and recovering the resultant heat (in effect, an underground power station without going to the trouble of extracting the coal). This has happened spontaneously in numerous areas (particularly in India) but the difficulty has always come in controlling the burning process.

5. Processing

The valuable metal needs to be separated from the surrounding gangue (uneconomic) material. Much of this can be done by efficient mining methods so that there is not too much dilution of the ore.

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Initial stages usually involve crushing (eg Jaw Breakers) and grinding (eg Ball Mills) of the ore to reduce the material to sand and silt sizes. Classifiers (essentially giant sieves) are used to check particle sizes, with the oversize material being recycled. This process makes handling the ore easier and raises the likelihood of being able to liberate all of the valuable metal elements (and maximising the surface area that will come into contact with subsequent chemical processes).

The next stage is normally a series of concentration processes; eg removing water and waste material. Where the ore has to be transported a considerable distance, this concentration will occur at the mine site rather than at the processing operation(In these circumstances, the ore can be transported as slurry via a pipeline). Processing methods include:

Carbon in Leach - Recovery (of gold and silver) from finely-ground ore by simultaneous dissolution and adsorption of the precious metals onto fine carbon in an agitated slurry tank.

Flotation - This process has been used to separate minerals since the early 1920s, and involves treating the ground ore in a bubbling mixture of water and chemical constituents. The metallic minerals bond with the chemicals (ie they stick and rise to the surface) and can then be skimmed off and the chemicals washed or burnt off. The resultant material can then be subjected to refining and/or smelting processes to improve the product's purity.

Heap Leach - The dissolving-out from mined rock of the contained soluble metals by percolating a chemical solution through mounded material.

ISA Process - Patented by Xstrata this process is used in more than 35% of the world's copper refining operations. The technology is used to bypass complex processes by utilising permanent stainless-steel cathodes in electro-winning applications. Xstrata also developed the ISAsmelt high-intensity copper-smelting furnace.

Solvent-extraction Electro-winning (SX-EW) - Dissolving of copper from the rock by organic solvents, with the metal then being recovered from solution by electrolysis.

Examples of metals-recovery processes include:

Mined bauxite is ground and mixed with caustic soda to form slurry. This is treated, and the alumina trihydrate particles recovered and smelted to form alumina. Oxygen is driven off by electrolytic action (in a refinery) to produce aluminium.

Copper ore is concentrated by grinding and flotation, and smelted in a furnace to create copper matte. Iron and sulphur impurities are then removed in a converter (heated air is blown through the material) to create blister copper, which is fire-refined and then electrolytically-refined to produce copper cathodes.

Zinc concentrates are roasted and the resulting calcine is leached and purified. Electrolyte zinc is deposited on sheets, stripped from them and then melted in a furnace (with the molten metal being cast in slabs.

The waste material from these processes is usually transported to a tailings dam (although they are sometimes dumped, controversially, at sea). There are various types but all are expensive, and so generally the retaining walls are built with either the waste product itself or with material that is available locally.

6. Marketplace

There are a huge number of mines in the world (for example, there are over 8,000 small-scale coal and metals mines in China alone), and the total amount of material extracted has been estimated at over 35,000 Mt/y. This is summarised as:

Ore (Mt)

Waste (Mt) Total (Mt)

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Metals mines 5,000 10,000 15,000Coal 5,000 7,000 12,000Aggregates 7,000 0 7,000Industrial Minerals

500 1,000 1,500

If only 'industrial-scale' operations are included, there are probably around 2,500 metals-producing mines in the world, and a similar number of coal mines. (Almost 60% of these mines are surface operations, which are usually also larger than underground operations.) There are perhaps 25,000 industrial-minerals mines and up to 100,000 quarries producing aggregate for construction purposes. (On a national scale, for example, there are a total of 1,100 mines in South Africa, of which only 400 are metals and coal mines, and 30 are diamond mines.)

However, for most practical purposes (eg targeted equipment sales), this list can be reduced even further. An estimated 2,000 coal, metals and diamond mines account for almost 90% of the world's total mined output (by value).

Also, because of the high proportion of transport costs in the overall price, and also to their widespread geological occurrence, aggregates are generally consumed close to where they are mined (ie they are not generally traded internationally).

The total value of annual mined production in recent years has averaged US$450 billion, with US$200 billion of this being attributed to coal/lignite, US$150 billion to metals (and gems) and US$100 billion to industrial minerals and aggregates.

Some other statistics:● Surface mines account for about 80% of all ore and rock extracted.● The top ten mining companies produce 25% of the mined production (by value).● Half of the world's mine and exploration expenditure is in the Americas.● The total mining equipment sector is worth around US$50 billion per annum.● There some 3,000 stock exchange-listed exploration and mining companies (almost half of these being in Canada).

Coal Sector: Coal production amounts to around 4,600 Mt/y of 'hard' coal, and 900 Mt of lignite. At prices varying from US$30 to US$60/t, depending on its calorific value etc, the value of this output dominates total mine production, and is valued at slightly more than ALL metals production combined (see below). The coal sector probably accounts for over one-third of all mining-equipment purchases. However, much of coal output is for consumption in local power stations, and the sector has nothing like the global media impact and influence of the metals sector.

Metals Sector: Some 15,000 Mt of rock is moved every year, two-thirds of it being waste. Around US$5 billion is spent every year on exploration and mine-feasibility studies, slightly more on mine construction, and up to US$80 billion on the actual cost of mining and processing.

The eight most important metals/gems (ranked by the average annual value of mined production over recent years) are:

US$ billion pa

Aluminium 32

Gold 30 (although US$44 billion at current prices)

Copper 23Iron Ore 15Diamonds 10Zinc 9Nickel 6PGMs 5

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Note that these are MINED values, not fabricated values. For example, there are almost 160 Mct of 'rough' (ie uncut) diamonds mined every year. (Carat = 0.2 grams and is not to be confused with '24-carat gold', which signifies 100% purity.) These diamonds are worth twice as much when cut ('polished') and seven times as much when sold in jewellery (ie almost US$70 billion per annum).

Gold production is currently some 2,500 t/y (80 Moz/y), with South Africa accounting for 14%, the US 11% and Australia 10%. However, there has only been a total of 175,000 t of gold ever mined (at least as measured going back 25 centuries), and 100,000 t of this is in identified stocks (one-third being held by Central Banks). Because of its high density (over 19 t/m3), this total mined amount could fit into a cube with sides of under 21 m.

Industry Structure

In Africa, Asia and Latin America, there are hundreds of thousands of garimpero miners (individuals who respond to 'gold-rush' conditions). However, if we exclude these people, there are perhaps 20,000 prospectors active in the world. (Note that 11,000 exploration licences were awarded in Brazil during 2003, and this is estimated to represent almost half of the Latin American total, itself under 25% of the world total; say 100,000 exploration licences awarded per year worldwide.)

At any one time there are probably 8,000 drilling projects underway, 1,500 reserve-definition studies, 800 feasibility studies and 400 mines under construction.

Early stage work requires funding through equity finance (ie offering shares for funding) but later-stage projects can utilise debt finance (ie borrowing cash). Large companies can also take on corporate debt, often split between so-called 'mezzanine' debt (medium risk; shareholder loans and debentures) and 'senior' debt (low risk; secured loans).

The metals' industry's annual equity and debt financings are averaging around US$40 billion, with about one-third of this currently being spent on acquisitions. (The proportion of equity to debt has been rising recently, and is currently around 35:65, because of the increased activity of junior companies and the higher level of acquisitions.)

Most metals require significant processing before they are in a form that can be traded. (Note that the prices quoted on the London Metal Exchange often relate to 'four-nines' purity, ie 99.99%.) This requires substantial capital expenditure, expertise and infrastructure, and so the sector is dominated by large companies. If juniors discover base metals, they tend either to sell the prospect to a larger company (directly or by being taken over) or develop a mine and sell the mineral at the 'concentrate' stage.

Gold and diamonds, however, are relatively simple to mine, transport and trade, and attract significantly more junior companies, and equity-market activity. For this reason there are many more press releases on gold and diamonds than their mined value would command compared with the other metals.

Mining Finance GuideThe United Kingdom Australia

Canada South Africa

THE UK

AIM was established in 1995 as a secondary market to encourage investment in smaller medium-sized growth companies.

The role of the Nominated Adviser (Nomad) is fundamental to the success of AIM. The Nomad will co-ordinate the due diligence process, including legal due diligence carried out by the company's lawyers, financial due diligence carried out by suitably qualified accountants and, in the case of natural resources companies, it is almost invariable market practice for a competent persons report to be prepared into the technical nature and extent of the resources available to the

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company (although not mandatory).

The Nomad will also ensure that the content of the prospectus (or admission document) has been properly verified. For a mining company key issues to be addressed here include confirmation of the ownership of mining tenements, the extent to which licences are required, whether they are in place, and when they are likely to expire.

There are inevitable tensions between the function of the prospectus as a sales tool for the company's brokers and, on the other hand, its function as a disclosure document.

Potential investors are as a result generally able to rely reasonably heavily on statements of fact but may consider more carefully statements which are preceded with the phrase "the directors believe that …ï¿½

The AIM rules require that the directors of a company seeking admission make a statement in the admission document that in their opinion the working capital available to the company will be sufficient for the 12 months following admission.

Where a business has not been earning revenue for at least two years director/employee shareholders and other key shareholders will be compulsorily locked in under the AIM rules. This will therefore automatically apply to exploration companies. Lock-ins are arrangements by which those shareholders undertake that their shares will not be sold for at least 12 months.

In February 2007, The London Stock Exchange announced further regulatory changes for AIM. A new rulebook provides examples of the types of activities the Exchange expects Nomads to undertake, while enhanced disclosure requirements mandate all AIM companies to maintain a website and to display core management and financial information, including admission documents, on it.

Dealing in mining shares is a question of assessing the service levels you can expect from a broker and the price paid for them. Dealing and settling trades in UK mining stocks especially should not be a problem and even in foreign markets difficulties are often exaggerated. But UK brokers, mindful of compliance and regulatory issues, may have a tendency to direct clients into FTSE100 mining shares as these are easy to deal in, instead of recommending smaller stocks or foreign shares outside the main markets.

The nuts and bolts of dealing in FTSE100 mining shares and middling UK or foreign AIM-listed mining stocks, and settling the trades, should not be an ordeal.

Ask yourself whether you need personal registration (in order to be in direct contact with the company in which you are investing) or whether you are happy to accept registration in the brokerï¿½s nominee name.

Some UK private investors have personal CREST (London Stock Exchange settlement system) membership sponsored by their broker, meaning they get all the usual corporate communications and dividends directly. Such an account is an electronic one without paper certificates or the need for transfer forms. Some foreign shares can be held through CREST but these are in the name of the sponsoring broker.

One issue to note is that on AIM some mining companies remain incorporated in their country of origin and have retained a listing, often primary, in their home market. Such shares are usually Australian, sometimes Canadian. A broker with an order in an AIM-listed Australian mining company may attempt to transact in London as it is cheaper for him - but not necessarily for you. The London market (if the time difference means the Australian market is closed) will offer to deal on a wider spread and in smaller volume than the Australian market would. Placing such an order in the Australian market for execution the following day would be better for the investor as long as market movements do not negatively impact the delayed trade.

Offering dealing only, online brokers are one option for the large markets with many automatically registering foreign shares in their nomineesï¿½ names.

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The other negative to buying on AIM rather than registering foreign stock is that stamp duty is charged in the UK.

AUSTRALIA

Called ï¿½Chessï¿½, Australia also has a paperless settlement system. UK brokers will tend to direct clients towards nominee registration. In Australia companies sponsor registration of their shareholders with their registrars. When a shareholder deals he gets a statement and shareholder number. On buying or selling more stock, he informs his broker of his account details. On settlement the registrar makes a book entry changing the shareholder register.

Over a third of all ASX-listed companies are now resource-based and, collectively, they make up some 22% of total ASX market capitalisation and account for a third of all trading volume.

Resource float activity has continued unabated since 2003 - the number of floats in 2006 was an increase of 55% on 2005 and 69% on 2004. The 115 resource companies floated in 2006 represented more then half of all ASX floats and raised more than A$1 billion.

The marketï¿½s support for follow-on capital raisings has also been impressive. In 2006 resource companies raised over A$8 billion in follow-on raisings - a 28% increase on 2005 and 96% increase on the previous year. The total capital raised by the resources sector in calendar year 2006 represented 16% (approximately A$9 billion) of total capital raised by all ASX-listed companies.

In 2006 the ASX launched resource industry specific indices - the S&P/ASX Gold Index and the S&P/ASX Metals and Mining Index. The Metals and Mining Index has been structured to be investible from a fund management perspective, with the expectation that institutional investors will be able to benchmark funds against it.

Another key ASX focus is the capital-raising settings in the listing rules. The ASX seeks to provide for greater flexibility within the listing rules to facilitate capital-raising for mining companies in the exploration and pre-production stage.

The ASX also says it recognises the failure of the Australian tax system in denying investors in exploration companies deductibility for investment in high risk exploration, and strongly supports the local industry in its quest to get a ï¿½flow through shareï¿½ concept adopted in Australia.

Australian mining legislation is a complex combination of Commonwealth and state legislation, the principal provisions of which are generally legislated and administered at a state level. Most states' mining policies encourage mining as the preferred use of the state's land.

In the case of mining exploration and mining extraction companies, ASX listing rules require quarterly reports on various production, development and exploration activities which, if they relate to exploration results or mineral resources or ore reserves, must be in compliance with the Australian JORC code.

The continuous disclosure rules under the ASX listing rules have helped to create a view of the ASX as a transparent market. Accordingly, foreign investors in listed mining companies should always be mindful of the continuous disclosure regime, particularly if they wish to negotiate an investment in confidence prior to any market announcement.

The Australian corporate tax rate is 30%. Dividends received by a non-resident from an Australian resident company may be subject to Australian withholding tax, depending on the extent to which the dividend is franked (franking credits attach to dividends that are paid out of profits on which company tax has been paid).

Australian capital gains tax may apply to non-resident shareholders in Australian companies depending on the status of the Australian company and the percentage of shares held. Portfolio interests of non-residents (less than 10% holdings) in listed public companies are exempt from

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capital gains tax.

No stamp duty is payable on transfers of Australian-listed company shares (nor on transfers of shares in private companies incorporated in Victoria and Western Australia).

CANADAJunior mining companies on the TSX Venture Exchange had a tremendous year in 2006. According to data from PricewaterhouseCoopers (PwC), their total market capitalisation rose to C$27.6 billion, a dramatic 86% increase on 2005.

Dealing in US and Canadian markets should present few problems for UK investors and this will most commonly be accomplished by a UK brokerï¿½s agent in the local market. Other options include opening up a dealing account with the London office of a US broker, usually online, or approaching a locally-based North America broker whose commissions will typically be lower than in the UK. Stock will usually be registered in a nominee name and held to the dealing brokerï¿½s account, incurring a charge.

Different listing standards are in operation on the TSX and TSX-Venture exchanges. They have been designed to reflect the different strengths and weaknesses of all sizes and stages of companies from majors with producing mines, through those with proven deposits beginning mine development to junior explorers looking for discoveries.

The TSX-V is well suited for early-stage mining companies looking to raise smaller amounts of capital to finance ongoing exploration. Certain disclosure is required, such as audited financial statements, and some minimum exploration work must have been carried out.

If the company has a later-stage mineral property or a producing mine and wishes to raise greater capital a TSX, as opposed to a TSX-V, listing will be required. Listing criteria are much more stringent than for the TSX-V, requiring the submission of a fully compliant NI 43-101 technical report examining stated mineral resources and mineral reserves. The key provisions of this instrument relate to reliance on the accuracy and balance of the technical report of a qualified person in good standing of a professional association, and with at least five years' experience in the industry.

A similar function to AIMï¿½s Nomad is carried out by participating organizations in the TSX listing process, though they do not assume as central a role.

If a company is contemplating a listing on the TSX or TSX-V, it will have to prepare a prospectus in the event of an IPO. For non-Ontario reporting issuers on the TSX-V, an exemption to the prospectus requirement may be available.On March 19, 2007, as part of its annual budget, the Canadian government announced fundamental changes to Canada's international tax rules.

On the negative side, the changes restrict the deductibility of interest in respect of foreign affiliate investments and acquisitions, thereby prejudicing Canadian multinationals that wish to make foreign acquisitions.

On the positive side, withholding tax on US and Canadian source interest will be eliminated under the Canada-US tax treaty for both arm's length and (on a phased-in basis) non-arm's length recipients.

SOUTH AFRICASTRATE, the South African system, is paperless too, though not as simple. Investors may choose to hold stock in their brokerï¿½s nominees but this means paying additional overseas annual holding charges. Under South Africaï¿½s ï¿½dematerialisedï¿½ system personal registration is still possible and certificates issued, but before dealing certificates must be dematerialised by the Johannesburg Stock Exchange and the holding recorded electronically. This usually takes two or three days and then the stock can be sold, although if the certificate emanates from the UK several days may to be added to the process. Brokers may insist the shares are dematerialised before placing an order in the market.

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Stock may be borrowed in South Africa to fulfil the three-day requirement but the expenses of doing so will be included in the price a seller in London receives.

One year after the discovery of gold on the Witwatersrand, the original Johannesburg Stock Exchange (JSE) was founded in 1887 to trade gold mining stocks. The JSE remains a resources-heavy market to this day, with over 40% of the total market capitalisation made up of mining and resource stocks. The vast majority of the market capitalisation, as much as 36%, is made up of only 10 major mining companies.

The largest of these companies have as their antecedents the old-style South African mining houses, which had dominated South African mining for over a century. In the 1980s and 1990s some venerable mining houses ceased to be a force in South African mining while others consolidated separately listed subsidiaries and re-invented themselves as single commodity-focused companies.

Further significant change to the way mining companies operate in South Africa followed the end of Apartheid. Firstly, all mining and prospecting rights and title reverted to the state, and a ï¿½use it or lose itï¿½ principle was introduced, mirroring policies in countries like Canada and Australia. Secondly, any foreign company or local white company would have to acquire a black equity partner holding at least 26% of the company or mineral property.

There are no exchange control requirements that prevent a foreign investor from owning shares on the JSE.

Foreign companies have been able to list on the JSE since 2004. Likewise, South African citizens can invest in a foreign company listed on the JSE with no limits imposed. Between 40% and 50% of daily trade on the JSE is currently concluded by foreign investors.

As part of the listings requirements, a competent persons report is required that must be in accordance with SAMRECï¿½s requirements and is vetted by an independent SAMREC committee. SAMREC is the South African Code for Reporting of Mineral Resources and Mineral Reserves.

The JSE recently launched the Alternative Exchange (AltX) for small and medium-sized businesses. It has some of the elements of AIM on the LSE. The market has a number of quality controls including the appointment of a designated adviser for each listed company, an advisory committee that determines the suitability of companies for listing and a directorï¿½s induction programme.

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