WHAT IS MINERAL EXPLORATION?

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1 INDABA PRESENTATION CAPE TOWN FEBRUARY 2017 AIM:SAV WHAT IS MINERAL EXPLORATION? AIM:SAV

2 What is mineral exploration? 2 Exploration is the term used to describe a wide range of activities aimed at searching for minerals or determining the extent of a mineral discovery or deposit It includes activities such as soil and rock chip sampling, ground-based and airborne geophysical surveys, and drilling Diamond Drilling at dusk

3 Who are exploration companies? 3 Exploration companies are seeking to find a mineral deposit worth mining and generally have no income (other than interest earned on previously discovered mineral deposits, or proceeds from the sale of a project) As such, exploration companies generally fund their search efforts by raising funds to conduct mineral exploration (e.g. shareholder investment)

4 What is the role of exploration companies? 4 Mineral exploration companies play an important role in the development of a country s mineral resources When minerals are mined, the company selling the product must pay a royalty to the government (or crown) The royalties are set by the government at a level that will encourage others to risk their capital in finding and developing these minerals, rather than the government risking taxpayer s money o This way the country can share in benefit of mineral resources without risking funds required for key everyday services to the community

5 The mineral exploration cycle 5

6 Identify prospective ground 6 The start of the process comes from the generation of ideas, which are based on the geology of a region, company exploration models and the broad scoping of potential resources that might suit a current commodity market Geologists will look at other known deposits to determine how and what geological process formed them They will then use these models to find conditions that are similar in different regions of the state and other countries Markets for mineral commodities are always changing (based on supply and demand) and can significantly impact on the process of exploration These models and concepts continually change as more is known about the area they are exploring The market defines the resources that are of interest and may be profitable and hence drives much of the exploration being undertaken

7 Low impact exploration 7 Low impact exploration, or early exploration as it is often referred to, generally results in minimal ground disturbance with limited rehabilitation requirements This form of exploration aims to cover large areas of ground (possibly 100s km 2 ) to identify specific areas for further, more detailed assessment The exploration company will initially use a range of low impact methods to generate potential mineral targets and increase their knowledge base, and generate a target for advanced exploration The most common forms of low impact exploration activities include reconnaissance work to: o better understand the geology o evaluate environmental conditions o determine how best to access the area o meet with landowners o verify previous work

8 Low impact exploration: visual inspection 8 Geologists and other scientists visit locations to look at the rocks and take measurements to assess whether the area may have potential for minerals

9 Low impact exploration: geological studies 9 Includes geological mapping, mapping of landforms and the general environment Mapping involves walking and/or driving across the land to map relevant features (e.g. the geology of the area)

10 Low impact exploration: rock chip sampling 10 Any rocks which may be of interest to the geologist are sampled using a rock hammer to collect 1-3kg of rock sample The sample is then sent to the laboratory for assaying to determine if the rocks have any minerals in them This work is usually completed on foot using vehicles to access an area

11 Low impact exploration: soil and stream sampling 11 Samples of about 250g of stream sediment or soils are collected and sent to the laboratories for assaying to identify if minerals are located in the area This work is usually completed on foot using vehicles to access an area

12 Low impact exploration: geophysical surveys (excluding seismic) 12 Involves the collection of geophysical data for spatial studies (e.g. density, magnetic, conductivity, radiological properties) A variety of instruments can be used to collect the data Instruments can be carried by hand, vehicle or by aerial survey, (e.g. plane, helicopter) Ground based geophysics Ground EM common copper exploration method Airborne Geophysics VTEM common copper exploration method Example of targets generated by geophysical testing

13 Advanced exploration 13 Companies design advanced exploration programmes to test potential targets The location of the targets identified will depend mostly on the results of the low impact exploration conducted and any land access requirements Advanced exploration, especially drilling, is concentrated within small areas of <1km 2 This can include exploration activities such as drilling (and associated activities), exploration methods involving earthworks (small costean or trenches) and seismic activities Advanced activities almost always involve some form of earth moving activities to allow exploration activities to be conducted safely. If the exploration is not successful then the earth works are rehabilitated

14 Advanced exploration: reverse circulation drilling 14 Samples are collected at 1m intervals and assayed for minerals. These are typically drawn on cross sections, together with the outline of any mineralisation defined Reverse Circulation drill rigs use air and a metal bit or hammer to drill a hole by crushing the rock and using compressed air to blow the sample to the surface, where it is collected for sampling

15 Advanced exploration: diamond core drilling 15 Diamond core drilling uses a diamond drill bit to core rock, which is then split into 1m samples and assayed for copper Depending on access to site the construction of a road and a drill pad to provide a safe working environment to drill the hole may be required, which is usually constructed using a front end loader, which builds a pad about 20m long and 15m wide

16 Mineral discovery 16 Once an explorer locates a mineral discovery or a potential deposit they may undertake more intensive exploration activities and commence various studies (e.g. environmental studies) to determine if they have a viable mineral resource To determine this, explorers may go through the following stages: resource drill out, resource definition, scoping study, pre-feasibility study, and bankable feasibility study (each of these stages is explained in the following sections) It is extremely important to note that throughout these stages, mining concepts (including deposit size, location and infrastructure requirements) may change significantly as more information is obtained about the deposit, suitable mining methods, processing requirements and infrastructure needs In most cases, the final mining concept will not be known until the bankable feasibility study is underway or completed. This is also the stage in which the majority of companies will submit mining applications to the government for assessment

17 Mineral discovery: establishing resource viability 17 Resource Drill-out Once a potential deposit has been discovered a resource drill-out is undertaken This is to enable an initial estimate of the grade and tonnes of the potential mineral resource by defining the extent of the mineral deposit, and to provide enough information to be able to make a confident estimate of the total resource Resource Definition All the information gained through the drilling program is then used to calculate the volume, quality and shape of the mineral resource. Three dimensional computer-generated models are produced to better define the shape and volume of the resource, along with information on chemical assays and mineral concentrations. This information will be used to determine the type of mine required in the studies below

18 Mineral discovery: establishing resource viability Scoping Study 18 A scoping study is undertaken to develop a broader picture of the value and potential of the mineral resource and the requirements for successfully mining it. This is a high level assessment of the costs and benefits of the prospective mine to determine whether it is viable to progress towards a more rigorous assessment The scoping study includes (but is not limited to) the assessment of: Economic factors the financial value of mining based on varying market prices for the product Infrastructure requirements requirements for transport to market, including distance and infrastructure required (e.g. water, power) Environmental/social risks potential impacts to the community and environment based on the proposed mining activities Physical characteristics of the mine potential processes required to extract the resource, whether to use open cut (pit) or underground mining Metallurgy processes required to extract the resource from the host mineral and costs of extraction options

19 Mineral discovery: establishing resource viability Pre-feasibility Study 18 The pre-feasibility study includes (but is not limited to) the assessment of: The pre-feasibility study assesses all the options presented in the scoping study and identifies the preferred option for each component (e.g. mining type and infrastructure options) or best case option More intensive community consultation generally starts at this stage. This will depend on the environmental sensitivity of the area, for example, more intensive consultation may start at the resource definition stage and through the scoping study stage Studies include environmental assessments, groundwater studies and the impact of mining on the water table, mine design, studies on infrastructure requirements, including roads, rail, water supply, ports, availability of mine workers in the region, housing, airstrips, mine planning and mine closure From a financial perspective, the aim of a prefeasibility study is to indicate the overall cost of the project to within ±25%

20 Mineral discovery: establishing resource viability Bankable Feasibility Study 18 The bankable feasibility study includes (but is not limited to) the assessment of: The bankable feasibility study is a comprehensive technical and economic study of the development options for a mineral project. The confidence level of the study will be higher than that of a prefeasibility study and may serve as the basis for the final decision to proceed with, or finance, the development of the project From a financial perspective, the aim of a bankable feasibility study is to indicate the overall cost of the project to within ±15% The financial modelling takes into account various aspects of the project, including projected demand for the minerals and anticipated market price, the capital costs of setting up the mine, processing plant and equipment needed, costs of mining and processing, costs of labour, running costs of the mining equipment, and the effect of taxes, royalties and compensation The bankable feasibility study is then presented to financiers to demonstrate that the project may be profitable and to assist in securing financial support

21 Mineral discovery: economic evaluation 21 About 1 in 1,000 exploration targets have sufficient mineral to extract through mining either from an open pit or underground, so the chances of any area becoming a mine are very low

22 Mineral discovery: establishing resource viability 22 Investment decision If, after all of the work, the financial model does not show a profit, then the project is put on hold until more favourable market conditions exist (e.g. the value of the product goes up faster than the cost of production) How a mining project is financed usually depends on the financial resources of the proponent. Larger, more established mining companies will usually have access to large debt facilities, whereas smaller (exploration) companies will often have to seek key investors or project partners to provide the required finance At any stage an explorer might cease activities due to funding issues, poor commodity prices, market conditions, environmental concerns or any other relevant factor As a result some mineral deposits may be left in the ground for many years until market conditions and commodity prices are more favourable, appropriate funding has been obtained and methods to address environmental concerns have been developed

23 Resource is viable: government licencing 23 Before mining can commence, a company has to apply for a mining lease over the proposed mine site This is also where much of the feasibility study is needed, to satisfy the state government that the deposit can be mined efficiently and effectively taking into consideration environmental, economic and social factors Company Presentation at a Community Meeting

24 Resource is viable: government licencing 23 What rights are required to conduct mining? Whilst it varies requirements between countries the key requirements for the company to commence mining are an approved Mining License/Concession and Environmental Impact Assessment/Study. The approvals include (but not limited to) key areas such as: Project Benefits Legislative Context Existing Environment Project Description Alternatives Considered Stakeholder Consultation Environmental and Social Impact Assessment Monitoring and Reporting Mine Closure and Rehabilitation Management Systems

25 Resource is viable: government licencing 23 Stakeholder consultation One of the key aspects of the licencing is the stakeholder consultation including local and peripheral communities, local and Federal governments, special interest groups, general public, potential suppliers and contractors. The prescribed licencing process will ensure that: Stakeholders are included in the impact assessment and permitting process Stakeholders are well informed about the project and its potential impacts Issues or concerns are addressed as early as possible The appropriate regulatory requirements are met Positive stakeholder relationships are established and maintained throughout the project life (i.e., from permitting through to construction, operations and closure phases)

26 Community projects 26 Mining provides substantial benefit to the local community through employment opportunity and economic investment School Education Project Local Sports Team Sponsorship University Study Collaboration School Sponsorship

27 Commence mining operation 27 Following approvals from all state and federal regulatory bodies, construction of the mine can begin followed by mining and production of their product

28 Site Rehab 28 Mine rehabilitation aims to minimise and mitigate the environmental effects of modern mining, which may in the case of open pit mining involve movement of significant volumes of rock. An example of this type of rehabilitation is The Municipal Stadium of Braga, an all-seater football stadium located in Braga, Portugal. The Stadium has been carved out of a rock at the site of a former quarry and consists of two lateral stands, which are connected to each other by a number of steel strings. For underground mines, rehabilitation is not always a significant problem or cost. This is because of the higher grade of the ore and lower volumes of waste rock and tailings. In some situations, stopes are backfilled with concrete slurry using waste, so that minimal waste is left at surface.

29 For further information on Savannah s corporate social responsibility programme, please community@savannahresources.com