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Mining Explained E-Book

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Information Mining in a Day is a back-to-basics seminar on the mining industry, providing a comprehensive but straight-forward explanation of what the global mining industry is, and how it works. Mining experts from many different disciplines are joined by Professor Phillip Crowson (former chief economist at Rio Tinto and director of the London Metal Exchange) and Dr Edmund Sides (principal resource geologist with AMECs mining group) Mining in a Day is for people working in sectors associated with the mining industry (the financial community, lawyers, PR companies, equipment manufacturers, service providers, etc) or anyone new to the industry that would benefit from an overview of mining. The Mining in a Day seminar will put you in a better position to develop more business opportunities as a result of your enhanced knowledge and understanding. For more information visit: http://www.mining-in-a-day.com/ Or contact Natalie Wootton natalie.wootton@aspermontuk.com Tel: +44 207 216 6088

All facts, figures, charts and information in this e-book are sourced from the Mining in a Day work book given to every seminar attendee.

Contents

Introduction ----------------------------------------------------------------------------------- Page 3 The Structure of the mining industry ------------------------------------------------ Page 3 Gold mining in china ----------------------------------------------------------------------- Page 3 Geology ---------------------------------------------------------------------------------------- Page 4 Types of rock & mineral products mined ------------------------------------------- Page 4 What minerals are used for -------------------------------------------------------------- Page 5 Overview of the Mining process ------------------------------------------------------- Page 6 Exploration ------------------------------------------------------------------------------------ Page 6 Classifications of resources/reserves ---------------------------------------------- Page 7 What next? ------------------------------------------------------------------------------------- Page 8 Case Study: Ivanhoe Mines -------------------------------------------------------------- Page 9 Operations ------------------------------------------------------------------------------------- Page 10 The different types of mining explained --------------------------------------------- Page 10 Processing ------------------------------------------------------------------------------------ Page 12 Waste Handling ------------------------------------------------------------------------------ Page 13 Metals & Minerals economics ---------------------------------------------------------- Page 14 Big picture industry overview ---------------------------------------------------------- Page 16 References ------------------------------------------------------------------------------------ Page 17

Introduction Mining is a big business, it is one of the three primary industries and is integral to support the growth and sustainability of any economy. Every product in all of our homes and offices is farmed, fished/hunted or mined. This is why the Chinese mining industry has seen a massive increase in the amount of mines opening and the returns investors are getting from Chinese mining projects. Although there are lots of different mining projects the big players dominate this industry; 90% (by value) of everything mined is produced by only 2,000 mines. The Structure of the mining industry Mining projects fall into one of the following categories. State ownership Multi-product multinational mining cos. Other multinational mining cos. Non-mining companies Domestic quoted mining companies Private companies Small-scale miners & artisanal workers

The top ten mining companies are responsible for one third of mined production. There are 3000 stock exchange listed exploration and mining companies (half of this number are listed in Canada)

Gold mining in china Total global production is some to 2,540t (almost 82Moz). Chinese output is around 9.6Moz, with Australia in second place on 7.0Moz, and the US and South Africa in equal third place on 6.7Moz (South African output is barely 25% of its production in the early 1970s).

Geology Mineral Any of the species into which inorganic substances are classified Rock Any natural material, hard or soft (e.g. clay), consisting of one or more minerals Soil The upper layer of earth in which plants grow, consisting of disintegrated rock usually with an admixture of organic remains Sediments Matter that is carried by water or wind and deposited on the surface of the land, which may in time become consolidated into rock Fossils The remains or impressions of a prehistoric plant or animal, usually petrified while embedded in rock, amber, etc.

Types of rock & mineral products mined: Precious metals Au, Ag Platinoids (PGMs): Pt, Pd, Ir, Os Ferrous metals Fe, Mn, Cr, V, Ti Base metals Cu, Pb, Zn Speciality metals Rare earth elements Other rare metals (In, Ga, etc) Agrochemicals Potash Phosphates Energy minerals/rocks Coal Uranium/thoriium Tar sands/oil shales Industrial minerals Salt, kaolin Clay minerals (fillers, etc) Construction Cement (limestone and shale) Brick clays Aggregates Dimension stone (walls and ornamental cladding)

What minerals are used for As mentioned previously everything in our lives is fished/hunted, farmed or mined. Take a look at the pie chart below which shows the uses of minerals in a standard Ford motor car. This helps us to appreciate how important mining is.

Ford Motor Company presentation to UK parliament (March 2008)

Overview of the Mining process

Exploration Exploration is the first step in any new mining project, and a very costly process. Mining companies of all sizes and dedicated exploration companies spend their time finding mineral deposits that are economically viable for production. Every year there are approximately 100,000 exploration licences given. Exploration spending was US$11.2 billion in 2010 on corporate non-ferrous metals (27% in Latin America). US$8 billion in 2009 (MEG calculation).

Classifications of resources/reserves Measured ...can be estimated with a high level of confidence. ... The locations are spaced closely enough to confirm geological and grade continuity. Indicated ...can be estimated with a reasonable level of confidence. ... The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed. Inferred can be estimated with a low level of confidence. ... inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information .. which is limited or of uncertain quality and reliability.

Less information High risk

More information Low risk

CRIRSCO (most Western countries)

Inferred

Indicated

Measured

Russia GKZ (+ FSU countries)

[P2

P1]

C2

C1

UN, China

333

332

331

Note: Scales for each code are different and may vary from deposit to deposit. Equivalence between codes in the same horizontal position is not implied.

What next? The following table will guide you through the process from exploration, finding a resource and then constructing the mine. Stage Typical decision required Resource Status

Ground selection

Take out exploration licence

Regional exploration

Identify targets for follow-up

Prospect testing

Locate potentially economic mineralisation

Scoping Study (Definition)

To continue to evaluation stage

Inferred

Pre-Feasibility Stage (Deposit Evaluation)

Assess alternative mining and processing schemes. Which is the optimum development scenario ?

Indicated (+Measured)

Feasibility Stage (Risk reduction)

Have start-up and payback period risks been minimised ?

Indicated + Measured

Construction (pre-production mining)

Are schedule/design changes needed ?

Measured + Indicated

Production

Set production targets; Annual budgets.

Measured + Indicated

The Mining in a Day seminar provides a laymans understanding of the terminology mentioned in this table (and more) while giving you examples of each step in the mining process. Find more out about the Mining in a Day seminar here: http://www.mining-in-a-day.com

Case Study: Ivanhoe Mines, Oyu Tolgoi (copper/gold) Mongolia exploration to construction. Oyu Tolgoi is the world's largest undeveloped copper-gold project and is located in the South Gobi region of Mongolia, approximately 550 km south of the capital, Ulaanbaatar, and 80 km north of the Mongolia-China border. The comprehensive Oyu Tolgoi Investment Agreement took effect March 31, 2010, following confirmation by the Government of Mongolia that procedural and administrative conditions contained in the Investment Agreement had been satisfied within the allocated six-month period that has followed the agreement's official signing in October 2009. The comprehensive Investment Agreement now has taken full legal effect. On October 6, 2009, Ivanhoe Mines and Rio Tinto signed a long-term, comprehensive Investment Agreement with the Government of Mongolia for the construction and operation of the Oyu Tolgoi copper-gold mining complex. The agreement creates a partnership between the Mongolian Government -- which acquired a 34% interest in the project -- and Ivanhoe Mines, which retained a controlling 66% interest in Oyu Tolgoi. Global miner Rio Tinto, which joined Ivanhoe Mines as a strategic partner in October 2006, is managing the development of Oyu Tolgoi. Based on Ivanhoe Mines' discoveries at Oyu Tolgoi during the past nine years, independently verified estimates indicate that Oyu Tolgoi contains approximately 81 billion pounds of copper and 46 million ounces of gold in measured, indicated and inferred resources. Construction of the Oyu Tolgoi copper-gold-silver complex advancing toward planned start of commercial production in the first half of 2013 The Oyu Tolgoi Project initially is being developed as an open-pit operation, with the first phase of mining to start at the near-surface Southern Oyu deposits, which include Southwest Oyu and Central Oyu. A copper concentrator plant, related facilities and necessary infrastructure that will support an initial throughput of 100,000 tonnes of ore per day are being constructed to process ore scheduled to be mined from the Southern Oyu open pit. Commercial production of copper-gold-silver concentrate is projected to begin in the first half of 2013. Along with the surface activities, an 85,000-tonne-per-day underground block-cave mine also is being developed at the Hugo North Deposit, with initial production expected to begin in 2015. The throughput capacity of the concentrator plant is expected to be expanded up to approximately 160,000 tonnes of ore per day when the underground mine begins production. Overall construction of the Oyu Tolgoi Project was 54.4% complete at the end of Q3'11. Source: http://www.ivanhoemines.com/s/Oyu_Tolgoi.asp?ReportID=379190

Operations There are four main types of mining; surface mining (divided into wet and dry), insitu mining & underground mining. Surface mining accounts for approximately 60% of all mines globally while underground mining accounts for approximately 40%. 90% of all ore and rock comes from surface mines and quarries.

The different types of mining explained: INSITU MINING: Specialised and rare: no workers have to go underground. Two main types; solution and thermal. Solution Mining: Injection of water down drill holes into deposits of soluble minerals to collect impregnated solution afterwards. Thermal Mining: Currently still just a theory: Thermal mining generates energy by burning coal insitu, the energy is collected as super-heated water, or steam. Underground mining This is the method we are more familiar with; this has many different approaches to mine design that will change depending on the mineral type, the geographical location, reserve location, depth, and experience of the mine manager. One of the more common methods used for less valuable minerals and soft commodities (such as coal) is room and pillar. An example plan of an underground mine:

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Surface Mines Surface mines are usually up to a depth of 400m however the cut off point depends on the economies of surface mining vs underground mining. Some surface mines can later become underground mines and some underground mines can later become surface mines. There are two types of surface mining wet mining and dry mining. These can be broken down into two categories: Open-cast = 'soft' commodities (eg coal) Open-pit = 'hard' commodities (eg copper).

An Example of a surface mine: ARGYLE DIAMOND MINE, AUSTRALIA

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Processing: Mined material is not normally readily saleable. Processing is getting the valuable commodity separated from the surrounding gangue (uneconomic) material.

Types of processing: Milling: Crushing/grinding (or liberation) / Concentration Smelters and Refineries: Metals recovery / Initial stages usually involve a reduction in the size of the ore from boulders to particles. The work will incorporate: Primary Crushing (eg Jaw Breakers) Secondary Crushing (sometimes) Grinding (normally using Ball Mills).

Below is a diagram of the milling process from ore to valuable commodity. This process varies from mineral to mineral, location, environment, access to power and water, grade and many other factors.

HEAP

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LEACHING Heap leaching is the simplest and cheapest processing method and can make even low-grade gold ore economic. Heap leaching involves percolating a cyanide solution through mined rock that is stacked in mounds on a polyethylene liner. The dissolved mineral is collected in channels underneath and the pregnant solution passed to a smelter. Recovery is only around 75% using this method. As mentioned earlier each recovery process is different depending on the type of mineral. For example recovery of copper, zinc, nickel etc is more complex than for gold, silver and platinum because the base-metal ores invariably contain sulphide minerals, which are difficult to separate.

Smelting Smelting is what comes after crushing. During this process concentrate is fed into roaster (yields a calcine), fluxes are added, calcine is fed into reverberatory Furnace. Gangue minerals form various low-melting minerals are poured off as slag. The metal matte is poured into a converter (with reducing agents), the remaining waste is oxidised and bonds with fluxes. The residual sulphur is burnt off. The metal is reduced to a product that is over 98% pure Refining: With the exception of aluminium, refining is the final stage in the processing of metals. For most metals, a smelter is used to create a metal matte, which is then refined to near 100% metal.

Aluminium is different This metal is the exception, in that refining comes before smelting. The mined bauxite is ground and mixed with caustic soda to form a slurry. This is treated in a refinery to recover alumina trihydrate, and then smelted to produce aluminium.

Waste Handling: The waste material from the processing plant is usually transported to a tailings dam, although they are sometimes dumped at sea. There are various types of tailings dam but (to reduce costs) the retaining walls are generally built with either the waste product itself or with material that is available locally.

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Metals & Minerals economics Value of annual mined production: US$1,100 billion coal/lignite US$900 billion in metals and gems US$600 billion cement and aggregates US$400 billion industrial minerals.

Some characteristics of demand for minerals & metals Demanded mainly for their properties in use, rather than for their intrinsic worth Substitutable in most uses, and end users are often indifferent between different mineral products used in their end use. Generally responsiveness to price changes is low in the short term but more responsive over the long run The main influences on demand: Population Geography and transport Availability of raw materials Incomes Economic structure Technology Fashion and social trends Government regulations Prices The chart below shows how steel consumption increases in direct correlation with an increase in GDP. You can see that as China has a lower GDP per head compared to its huge demand for steel it does not follow the pattern of many other developed or developing economies.

China 2009

Steel consumption/head (kg)

100

1 100

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1,000 10,000 100,000 GDP per head. $ on a ppp basis

What moves prices: Supply/demand balances Costs Economic activity Inventory movements Exchange rates Confidence/ speculation

The chart below shows the relationship between copper prices and stock ratios.

400 380 360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 0 1 2 3 4

2010 Q2

Prices US cents/lb in 2009 terms

1983 Q1

10

11

12

13

Total Reported Stocks in Weeks' Consumption

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Big picture industry overview: Exercise The chart below shows a big picture of all of the processes involved in a mining project. See if you can complete the chart to include: 1. What types of company are participating at each stage of the mining process (participants) 2. What services and equipment are needed at each stage of the mining process (the black areas in services and equipment needed). The answers to this exercise will be given during the Mining in a Day seminar.. Find out more about the Mining in a Day seminar: http://www.mining-in-a-day.com/

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References: Page 5: Pie Chart sourced from Ford Motor Presentations Page 6: Diagram is sourced from BC Minerals http://www.bcminerals.ca/s/home.asp

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