Engineering & Mining Journal

JUL 2014

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

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JULY 2014 • E&MJ; 5 www.e-mj.com NEWS-LEADING DEVELOPMENTS • Active portfolio management with a push to simplify structures and a focus on extracting value from higher-quality assets; • With capital constrained budgets, a move to sharing mining infrastructure as a means to reduce operating costs, realize efficiencies and spread capital and risk; and • A commitment to addressing diminish- ing productivity levels." Maintaining dividend levels, exercis- ing more selective capital allocation, and active portfolio management also are among the levers being pulled to restore investor confidence in the sector. During 2013, the market value of the top 40 mining companies fell by $280 billion to $958 billion, a 23% reduction on the prior year. Gold companies were particularly hard hit, and diversified com- panies and coal companies did not fare much better. Only four of the top 40 showed an increase in market capitalization during the year: Freeport-McMoRan, Fortescue Metals, First Quantum Minerals, and Polyus Gold. Each of these companies had unique circumstances during the year, including the impact of acquisitions and debt restructuring, that caused their share prices to trend differently than the overall mining market. Early 2014 saw some semblance of calm return to mining share markets, with market capitalization for the top 40 stable, evidence that some level of confi- dence may be returning, Mine 2014 's Executive Summary stated. Metals prices fell significantly in 2013, with gold prices suffering their greatest annual decline in more than 30 years. Lower commodity prices, along with record impairments of $57 billion, led to a 72% fall in net profitability among the top 40 to $20 billion, the low- est level in a decade. Ten of the top 40 companies recorded impairments of more than $1 billion in 2013. Almost all of these were either gold companies or among the top five diversified companies. Mine 2014 found that for the first time in 2013, the majority of the 40 largest mining companies were from emerging market countries. Given these companies' current performance and greater recent appetite to invest capital, this trend is set to continue. Also in 2013, net profits from emerging market companies were $24 bil- lion in aggregate, compared with an aggre- gate net loss of $4 billion for developed market companies, which were particular- ly impacted by impairments. PwC said CEOs of the top 40 are aware of the need to be seen amongst their peers as low-cost producers and to deliver on realigned strategies. "Against this backdrop, the license to operate in all corners of the globe is becoming more challenging, with governments increas- ingly eager to expand their share of taxes and royalties, and local communities expecting more and more for operating in their backyards. Governments continue to lean on mining companies at a time when they can least afford it, and elec- tions in Brazil, India, Indonesia and South Africa have driven greater uncer- tainty on fiscal stability," PwC reported. Mine 2014 's Executive Summary con- cluded: "The question remains as to who will be bold enough to thrive in these dif- ficult times. M&A; activity, which was sur- prisingly subdued in 2013, seems to have started to pick up in early 2014. This is not surprising with company valuations at relative lows. We can expect to see some moves toward consolidation—friendly or otherwise—if only to seek out synergies to reduce costs in this low price environ- ment, consistent with the new mantra of lower costs and higher productivity. "Further into 2014, after cleaning house and backed by a stronger U.S. economy and continued strong demand from China, investors will grow impatient for demonstrable returns from the strate- gies adopted by the top 40 to lift the industry off the bottom." First Quantum Acquiring Lumina Copper and its Taca Taca Copper Project First Quantum Minerals and Lumina Copper have entered into a definitive agreement whereby First Quantum will acquire Lumina for cash and shares in a transaction that values Lumina at about C$470 million. Lumina is 100% owner of the Taca Taca copper deposit in the Puna region of Salta province in north- west Argentina. Taca Taca currently has NI 43-101- compliant indicated mineral resources estimated at about 9.6 million metric tons (mt) of copper contained in 2.17 billion mt grading 0.44% copper, 0.08 g/mt gold, and 0.013% molybdenum, plus inferred mineral resources estimat- ed at approximately 3.4 million mt of copper contained in 921 million mt grading 0.37% copper, 0.05 g/mt gold, and 0.012% molybdenum, using a 0.3% copper equivalent cut-off. Lumina announced the results of a preliminary economic assessment (PEA) of the Taca Taca project in April 2013. The study considered an open-pit mine operating over a 28-year mine life, deliv- ering 120,000 mt/d of throughput during the initial seven years to a conventional, two-line mill and concentrator. The PEA included an expansion of the concentra- tor by way of a third line to accommodate a total throughput of 180,000 mt/d from year eight onward. The throughput increase would correspond to a decline in head grade as higher-grade supergene mineralization is replaced by lower-grade primary mineralization as the predomi- nant material mined. Taca Taca production of copper in concentrate would average approximate- ly 244,000 mt/y over the 28-year mine life. Gold production would average 110,000 oz/y, and molybdenum produc- tion would average 4,100 mt/y. Copper production over the first seven years of the mine's life would average 271,000 mt/y, with a peak in year two of 349,000 mt of copper. A preliminary estimate of project development cost for the Taca Taca deposit, shown here in the background, is $3 billion for a 120,000-mt/d mining operation and a conventional mill producing an average of 244,000 mt/y of copper in concentrate. (Photo courtesy of Lumina Copper) EMJ_pg04-27_EMJ_pg04-27 7/2/14 1:50 PM Page 5

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