WORLD EXPLORATION TRENDS

WORLD EXPLORATION TRENDS 2014 A Special Report from SNL Metals & Mining for the PDAC International Convention

WORLD EXPLORATION TRENDS Responding to lower metals prices, uncertain demand, and poor market conditions, all company types cut their exploration activity sharply in 2013. The result was a 29% decrease in estimated worldwide nonferrous metals exploration budgets compared with 2012. SNL Metals & Mining s 24th edition of Corporate Exploration Strategies (CES) calculated that the mining industry s total budget for nonferrous metals exploration was $15.2 billion in 2013 1, significantly lower than the record $21.5 billion total in 2012. The steep plunge in exploration budgets was due to a combination of investor wariness of the junior sector that made it difficult for most companies to raise funds, and a strong pullback by producing companies on capital and exploration spending to improve their margins. SNL Metals & Mining is pleased to make this special report on global exploration and industry trends available to PDAC members and Convention 2014 delegates. Leveraging our extensive coverage of the exploration sector, this World Exploration Trends article provides an overview of global exploration trends based in part on the results of our 2013 edition of the Corporate Exploration Strategies study. SNL Metals & Mining is acknowledged as the leader in providing comprehensive information, expertise, and analysis to the mining industry. Jason Goulden Director SNL Metals & Mining 1 SNL Metals & Mining obtains the data used in our CES studies through the generous cooperation of the companies we survey. The individual nonferrous exploration budgets covered by the study include spending for gold, base metals, platinum group metals, diamonds, uranium, silver, rare earths, potash/phosphate, and many other hard-rock metals. They specifically exclude exploration budgets for iron ore, coal, aluminum, oil and gas, and many industrial minerals. (All figures are reported in U.S. dollars; all historical exploration figures throughout this report represent dollars of the day and have not been adjusted for inflation.)

3 BASIS FOR ESTIMATED NONFERROUS EXPLORATION TOTAL SNL Metals & Mining s 2013 exploration estimate is based on information collected from more than 3,500 mining and exploration companies worldwide, of which more than 2,100 had exploration budgets reported in the CES study. These companies (each budgeting at least $100,000) together allocated $14.43 billion for nonferrous exploration, which we estimate covers about 95% of worldwide commercially oriented nonferrous exploration spending. Adding our estimates of budgets that we could not obtain, the 2013 worldwide total exploration budget reached $15.19 billion. Although iron ore exploration remains outside the scope of the CES and is not included in the analysis throughout the remainder of this report, we began coverage of iron ore explorers in 2011 when we initially surveyed companies for their total ferrous budgets above and beyond the core targets detailed in the CES. Including the allocations by a number of pure iron ore producers and explorers that were not otherwise part of the study, we compiled a total exploration budget of $1.74 billion for iron ore in 2013, down from $2.89 billion in 2012. Aggregating the iron ore budgets with the budgets for the other commodities covered by the CES, the total 2013 exploration budget rises to $16.17 billion, of which 11% is attributable to iron ore. SUMMARY OF OVERALL TRENDS Figure 1 shows SNL Metals & Mining s estimate of annual nonferrous exploration allocations since the early 1990s relative to a weighted annual metals price index. The graph indicates the cyclical nature of exploration investment and the correlation between metals price trends and exploration spending. Rising metals prices fueled an initial increase in worldwide exploration from 2002 s low, while the emergence of China s appetite for resources led to a multiyear bull run that sent the worldwide exploration budget total to a new high of $13.75 billion in 2008 a 677% increase from the bottom of the cycle in 2002. The mining industry s boom years came to an abrupt halt in September 2008 as the world fell into the worst economic downturn in decades. The resulting $5.77 billion (42%) drop in exploration spending in 2009 from 2008 s high was the largest year-on-year decline, in both dollar and percentage terms, since SNL Metals & Mining began producing the CES in 1989. The global economy improved markedly through 2009 and 2010, and with it metals prices, most of which traded well above their longterm averages through 2011. In response, most companies Figure 1: Estimated Global Nonferrous Exploration Budget Totals, 1993-2013 Nonferrous Exploration (US$ bil) $24 $20 $16 $12 $8 $4 Nonferrous Exploration Total SNL Metals & Mining Indexed Metals Price $0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 aggressively increased their exploration budgets, lifting the industry s budget total by 44% in 2010 to $11.51 billion, and by a further 50% in 2011 to $17.25 billion. Continued uncertainty in Europe and the United States, along with concerns over waning demand in China, caused most metals prices to dip or at best level off through 2012. Nevertheless, most metals prices remained well above their ten-year averages, and exploration budgets continued to increase in 2012 (up 19%), setting a new all-time high of $20.53 billion. Despite the increase, 2012 represented a year of change for the industry. Beginning in April, investors became increasingly wary of the junior sector, causing many companies to struggle to raise funds for their ongoing programs and forcing them to cut actual spending below their budgets for the year. Throughout 2013, markets were even less willing to support junior companies, and producers pulled back on capital and exploration spending in order to strengthen margins. As a result, the exploration budget total fell to $14.43 billion in 2013, down 30% year on year. EXPLORATION EXPENDITURES FALL IN ALL REGIONS Exploration allocations for all regions decreased in 2013, led by the largest dollar decreases in Latin America and Canada. Latin America remained the most popular exploration destination, attracting 27% of global spending in 2013; six countries Mexico, Chile, Peru, Brazil, Colombia, and Argentina accounted for the lion s share of the region s total. Gold remained the top Latin American exploration target for the fourth consecutive year, while the share devoted to base metals rose to 40% after hitting its lowest share since the late 1990s in 2012. 5 4 3 2 1 0 Indexed Metals Price (1993=1)

4 Eurasian countries had the second-largest aggregate budget, led by allocations for Russia and China, and by four other countries Kazakhstan, Turkey, Sweden, and Finland that each attracted more than $75 million in exploration budgets in 2013. For the first time since 2009, Russia reclaimed the region s top position with 30% of total allocations. Gold replaced base metals as the region s top target, led by major allocations for Russia, China, and Kazakhstan. place, where it has been since 2003. Its allocations decreased only 25%, leaving it just $25 million behind Canada. Miners were relieved when incoming n Prime Minister Tony Abbott pledged to abolish the Mineral Resource Rent Tax and the Carbon Emissions Tax. Western was again by far the most popular n state for exploration with 54% of the country s total. Gold remained the top exploration target; with allocations falling just 21%, gold s share of overall spending rose to 45% from 43% in 2012. Africa dropped from second place to a close third, trailing by a mere $4 million, with about 17% of worldwide exploration budgets; major African exploration destinations included Democratic Republic of Congo (DRC), Burkina Faso, South Africa, Zambia, and Ghana. A continued focus on West Africa (Burkina Faso in particular) caused gold to receive the largest allocation in 2013. Led by allocations for DRC, budgets for base metals fell only 14%, raising their share of overall budgets to 27% from 22%. Gold and copper exploration in the United States kept it in sixth place regionally, ahead of the Pacific Islands. Nevada had the largest share (41%) of the country s 2013 budget total, and three states Nevada, Arizona, and Alaska together accounted for 68%. Gold remained the preferred exploration target, although a 42% drop in planned expenditures lowered gold s share of overall U.S. budgets to 50% from 54% in 2012. Base metals allocations decreased 28% year on year; however, their share of the U.S. total budget increased to 36% from 31% in 2012. Canada had the largest decrease (41%) of any region, falling to fourth place with 13% of worldwide allocations. Ontario accounted for 31% of Canadian exploration budgets, followed by British Columbia with 17%. The decline in gold allocations was proportionally less than for most other targets, raising gold s share of total Canadian budgets to 52% from 49% in 2012. Planned spending for base metals decreased 47%, lowering their share of Canada s budget to about 19%. Among the Pacific Islands, exploration allocations for Papua New Guinea, Indonesia, and the Philippines accounted for the bulk of the region s 7% of the world total, with budgets split mainly between gold (55%) and base metals (41%). Although it remained in last place regionally, Pacific/ Southeast Asia had the smallest dollar decrease ($383 million) of all regions in 2013, closing the gap between it and the United States (where allocations were down about $630 million) to $78 million from $324 million in 2012. had 13% of the 2013 world total and held fifth Map 1: Top Destinations for Nonferrous Exploration, 2013 Russia 5% Canada 13% 4% Europe FSU United States 7% 2% China 4% Mexico 2% 6% West Africa 6% Latin America Peru 5% Brazil 3% Chile 6% 6% 3% 2% 6% Pacific Islands DRC 3% Southern Africa locations account for 6%. East Africa 13%

5 JUNIOR COMPANIES STRUGGLE UNDER WEAK FINANCING CONDITIONS Since the great majority of junior companies do not generate revenue from producing mines and typically rely on equity financings to fund exploration, their spending capacity largely depends on market conditions and investor interest, which are in turn heavily influenced by current and forecast metals prices. Figure 2 shows the amount raised for precious and base metals exploration by junior companies covered by the CES. Following the sharp economic downturn of late 2008, market conditions recovered much more quickly than most pundits anticipated. Conditions began to improve through the latter part of 2009 as safe-haven investing sent the gold price higher and base metals prices recovered. Strong support from investors allowed junior companies to secure an average annual total of $6 billion for exploration in 2010 and 2011; however, by early 2012 investment in mining commodities became increasingly scarce, forcing many juniors to curtail programs in the last half of the year. No longer buoyed by a rising gold price, the juniors access to capital continued to evaporate in 2013, lowering the sector s amount raised for exploration to levels not seen for a decade. Dismal investor interest remains the primary concern for most junior companies heading into 2014, and has already forced considerable strategic shifts within the sector. Many juniors are now focused on advancing only their flagship assets in order to be well-positioned once funding conditions improve. Some companies are merging to combine resources, while others without standout projects have either slashed programs and laid off most of their exploration personnel, become dormant, or left the mining industry altogether. Although these measures will allow many companies to survive the period of weak funding, macroeconomic conditions continue to cloud the mining industry s near-term outlook, leaving no clear path for companies to reactivate programs. SIGNIFICANT DRILLING CONTINUES TO SLOW As illustrated in Figure 3, our recent research suggests that many companies able to raise funds for exploration reported a significant exploration result within two quarters, representing the lag needed for juniors to deploy capital, complete part of a drill program, and receive assay results. Changing investor interest has also spurred changes in the nature of exploration drill programs over the past six years. During the sharp downturn in late 2008 and early 2009, exploration programs shifted to more advanced assets and focused on expanding known resources. By late 2010, a return to earlier-stage exploration caused a greater share of significant exploration results to come from initial finds, new zones, and satellite deposits. Drill result announcements gained momentum through 2010, including a typical seasonal increase in the Figure 2: Significant Exploration-related Financings 2 by Junior Companies, 2008-13 Base Metals Financings Gold Financings SNL Metals & Mining Indexed Metals Price Figure 3: Significant Gold and Base Metals Drill Results Announced 3, 2008-13 Significant Gold Results Significant Base Metals Results Total Financings for Exploration $1,500 175 150 $1,250 Amount Raised (US$ mil) $1,000 $500 125 75 Indexed Metals Price (May 2008=1) Number of Announcements 125 100 75 50 25 $1,000 $750 $500 $250 Amount Raised (US$ mil) $0 25 0 $0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2 Exploration-related financings include financings by junior companies of $2 million or more where the company indicated that all or most of the proceeds were for exploration. Proceeds used primarily for acquisitions, development, or debt servicing/ repayment are excluded. The financing data only covers precious and base metals, which account for most of the exploration spending covered by the CES. 3 SNL Metals & Mining s Industry Monitor tracks significant precious and base metals drill results monthly from 2008 onward, as reported in SNL s online database. Significant drilling includes initial finds, new zones, or satellite deposits, and extensions to existing mineralization essentially any drilling that adds to the resource potential of a particular project or deposit. For this section, and in the Industry Monitor service, silver and PGM results are included with the base metals (copper, nickel, zinc-lead, molybdenum, and cobalt) to allow a clear picture of the unique trends in gold exploration.

6 Map 2: Location of Significant Gold and Base Metals Drill Results Announced3, 2013 Base Metals Gold Yukon Quebec British Columbia Russia Europe/FSU Nfld/Labrador Ontario Nevada South America USA Central America/ Caribbean 2% Mexico Peru Africa/ Middle East West Africa Brazil Chile China/SE Asia Pacific Islands Eastern Africa DRC Queensland Western Southern Africa New South Wales Canada INITIAL RESOURCES PLUNGE FROM 2012 s HIGHS The persistent uncertainties, financing difficulties, and reduced drill programs resulted in a decrease in the annual amount of new resources added to the pipeline in 2013. The number of initial resources for new zones and deposits fell to only six per month in 2013 from 14 per month in 2012, while the dollar value of the resources announced in 2013 plunged to about a quarter of the 2012 value. Many juniors with the most promising initial resources had only mixed results in attracting funding for their 2013-14 The lags in junior sector exploration activity become apparent when comparing the timing of successful financings with the timing of announced exploration successes and initial resources. While the 2008-09 global Figure 4: Significant Gold and Base Metals Initial Resources Initial Base Metals Resource Announcements Announced4, 2008-13 Initial Gold Resource Announcements Initial Finds and New Zones 20 60 15 45 10 30 5 15 0 0 2008 2009 2010 2011 2012 Number of Initial Finds and New Zones The slowdown in drilling activity became more pronounced in 2013, with 771 significant results announced by junior and intermediate companies a 30% decline from 2012, but less than the 39% and 71% year-on-year drops in junior budgets and financings respectively. Despite a modest level of success in 2013, the continued lack of investor funding for junior exploration will inevitably translate into fewer significant drill results being reported by juniors in 2014, and will cause stagnation in much of the industry s medium- and long-term supply pipeline. programs, while most others with new deposits attracted minimal investor interest. Number of Initial Resources September quarter. Buoyed by strengthening metals prices and an exceptional period of financing availability in the December 2010 quarter, drilling activity increased dramatically beginning in May 2011, and reached a fouryear peak in October and November 2011. Drill result announcements remained fairly robust through most of 2012, with increasing curtailment of programs only reflected at the very end of the year. 2013 4 SNL Metals & Mining s Industry Monitor tracks significant precious and base metals initial resources monthly from 2008 onward, as reported in SNL s online database. It includes initial estimates for both new deposits and new zones. For this section, and in the Industry Monitor service, silver and PGM results are included with the base metals (copper, nickel, zinc-lead, molybdenum, and cobalt) to allow a clear picture of the unique trends in gold exploration.

7 economic downturn was relatively short-lived in terms of metals prices and mining profitability, the junior sector took almost three years to resume adding resources at new deposits to the pipeline at pre-crisis levels. After financings peaked in late 2010, reports of initial finds and new zones peaked almost a year later, and initial resource announcements followed suit the year after that (see Figures 3 and 4). With the number of new finds and initial resources in 2013 falling below the levels of early 2009, a rebound in the numbers of initial finds and resource announcements seems unlikely before 2015. through the discovery of new large-scale deposits, and the near-term need to replace and upgrade reserves through exploration at existing operations, as high-quality, largescale acquisitions became more scarce. Many larger producers also decided to focus on their main assets and to divest noncore projects. The number of advanced assets now on the market is attracting interest from some smaller producers and from unconventional players, such as private equity, sovereign wealth funds, and commercially oriented state-owned entities which are also being targeted by the juniors as sources of funding. LOOKING FORWARD Despite the belief among some analysts that the mining industry has hit bottom, the timing of any metals market rebound remains unpredictable; as a result, market uncertainty will continue to be the major influence on the mining industry heading into 2014. Without a near-term resumption of financing, juniors will be forced to further restrict exploration spending, which will lead to further declines in both their aggregate budget total and their share of the overall budget total. Although we believe that most producers made their largest exploration budget adjustments in 2013, a combination of uncertain demand and poor quarterly and annual results will likely result in further capital conservation initiatives, including a reduction in producers exploration budgets. Given these forecast scenarios, we expect a modest decrease in exploration budgets for 2014 compared with 2013. Global economic uncertainty hit the mining industry hard in 2013, bringing fears of a troubled road ahead for many companies. With an overall outlook for a period of modest economic growth, most metals prices are not expected to rise notably in the near term, while the gains made by gold s 2002-11 surge seem a distant memory. Despite the current difficulties, recent pipeline cutbacks may set the stage for a leaner and stronger industry moving forward. Facing unhappy investors and slowing demand, most major producers began focusing on profit margins over growth in mid-2012, by cutting or delaying capital spending and trimming exploration budgets. In 2013, many larger players significantly cut late-stage allocations, and focused more on early-stage and minesite work. These producers recognized the long-term need to replace production Map 3: Location of Significant Gold and Base Metals Initial Resources Announced4, 2013 Gold Base Metals Alaska Manitoba Ontario Central America/ Caribbean 2% Mexico South America USA Canada Europe/FSU Brazil Chile West Africa Pacific Islands DRC Eastern Africa Western Queensland

Headquarters One SNL Plaza P.O. Box 2124 Charlottesville, VA 22902 USA +1 (866) 296-3743 sales +1 (434) 977-1600 New York, USA Trinity Centre 115 Broadway, 16th Floor New York, NY 10006 USA +1 (212) 364-7530 SNL METALS & MINING: THE SINGLE SOURCE FOR GLOBAL MINING INTELLIGENCE SNL Financial first entered the Metals & Mining sector with the purchase of Metals Economics Group in 2012. Now, with the acquisition of IntierraRMG, another leading mining intelligence provider, SNL has reaffirmed our commitment to providing the global mining industry with a one-stop source for accurate and complete data to support better decision-making. SNL Financial is the world s premier provider of sector-specific financial data, news, analytics and expert insights. For almost three decades, Wall Street and operating companies in each sector have looked to SNL as the foremost authority on Banking, Insurance, Real Estate, Energy and Media & Communications, and now Metals & Mining joins the ranks. For a demo or free trial, email SNLInfo@SNL.com or visit SNLMetals.com Halifax, Canada 1718 Argyle Street Suite 300 Halifax, Nova Scotia B3J 3N6 Canada +1 902 429-2880 London, United Kingdom 7 Birchin Lane London, EC3V 9BW United Kingdom +44 20 7398 0873 Perth, 6 Thelma Street Level 1 West Perth, Western 6005 +61 8 9486 1111 +61 8 9486 1222 fax Vancouver, Canada Calgary, Canada Toronto, Canada Stockholm, Sweden Hong Kong SNLMetals.com