Investor Readiness for Project

Finance and Major Transactions

a Technical View

Philippe Baudry
Executive General Manager – Consulting and Advisory

JOB NO.
DATE. 16 April 2019
Workshop Agenda
• Corporate Introduction

• Types of Investors to the Mining Industry

• Equity Markets Capital Raising

• Compliance Reporting Overview

• Types of Studies and their use as Cost

Estimate

• Environmental and Social Requirements

• Evolution of Project Finance through

Commercial Debt
Corporate Introduction
 RPMGLOBAL OVERVIEW
We are a global industry leader in the provision of mining technology and
consulting & advisory services globally.
• ASX Code: RUL

• 23 Offices Globally

• 400+ Technical Consultants

• 2,000+ Global Associates

• 50 Years Experience

• 125 Countries

• 5000+ software installs Current RPM footprint

New offices opening in 2019

• 15,000+ Studies

• $60 Billions value added

PAGE 5
 RPMGLOBAL OVERVIEW
Completed over 15,000 studies
across all commodities

We are Specialists in JORC &

43-101 Compliant Resource and
Reserve Estimates.

Trusted Advisor for Scoping,

Prefeasibility, and Feasibility
Studies.
Current RPM footprint
New offices opening in 2019

RPM is a preferred supplier of

Mine Economic Improvement
Studies.

PAGE 6
 RPMGLOBAL OVERVIEW

We are Specialists in Due Diligence, Lenders

Engineering and Peer Reviews for all of the
worlds major banks and their advisors

Current RPM footprint

New offices opening in 2019

PAGE 7
 RPMGLOBAL OVERVIEW

We are involved in 75% of mining IPOs on

the Hong Kong Stock Exchange* and
Broader International Financial Markets
(TSX/ASX/LME)
and capital raisings worth 60 billion USD.

Current RPM footprint

New offices opening in 2019

*Since the introduction of JORC reporting standards.

PAGE 8
RPMGLOBAL – ADVISORY & CONSULTING
• Industry leader in Mining Advisory & Software

• Mining Project Services

• Geology and exploration
• Mining studies
• Operational scenario analysis
• Technical site support and business
process improvementProject Regions
• Investor Services
• Mergers and acquisitions
• Lenders Engineer
• IPO’s and capital market transaction
support
• Asset analysis and ranking
• JV and investors technical representation
• Operational Services

- 9
 RPMGLOBAL TURKEY EXPERIENCE MAP

PAGE 10
 ADVISORY SERVICES FOR THE FULL LIFE OF MINE

PAGE 11
TYPES OF INVESTORS AND
THEIR PREFERRED
INVESTMENT WINDOWS
• Debt (Commercial, Sovereign,
Private)
• Mining Companies
• Chinese State Owned
• Streaming and Royalty
 TYPES OF INTERNATIONAL FUNDING FOR THE MINING
INDUSTRY
• Corporate Lending • Private Equity/Private Debt
• Equity (Public Markets) RK
• Offtakers
• Streamers and Royalty Traxis Ocean Partners

• Venture Capital
• Import Export Credit Agencies

• Commercial Debt

PAGE 13
 WHERE IN THE DEVELOPMENT CYCLE DO THEY INVEST

1. Corporate Lending and

Equity Markets
2. Streamers and Royalty
3. Import Export Credit
Agency
4. Offtakers
5. Private Equity/Private
Debt
1
6. Commercial Debt 2
3
4
5
6

PAGE 14
EQUITY MARKET CAPITAL RAISING
• Types and Transaction
• Which exchange for which project
(Purchase, Location, Status)
• Type of raising for which project
(IPO / RTO or stay private)
EQUITY MARKET REGULATIONS
• Each market has its own listing rules which must be strictly abided by when making
public disclosures. These rules are vigorously policed and in the case of mining companies
usually impact:
• Requirements for reporting of resource and reserves
• Continuous disclosure requirements
• Materiality – what is considered material
• Forward looking statements – what can you say and not say
• Common types of transaction to list your asset:
• Initial Public Offering – IPO’s are the most common way of filing a project on a stock
exchange. Will require reporting of your Projects resources and reserves under international
reporting standards such as JORC or NI 43-101, usualy referred to as a Competent Persons
Report (CPR)
• Reverse Take Over – RTO these are common on some markets where dormant shell
companies which are already listed are used to inject mining projects into the shell creating a
new company with a new purpose, mining. Most will require a CPR to be prepared
• Very Significant Acquisition – VSA’s are similar to an RTO except the listed company is the
actual company acquiring the asset.
 MINIMUM PROJECT STATUS FOR LISTING
Exploration Pre-development Advanced-Development

Exploration

Development

Exploration

Exploration

Exploration

PAGE 17
 EXCHANGE & RESOURCE/RESERVE CODES

London Stock Exchange – JORC, NI 43-101, SAMREC

Alternative Investment Market (London) – JORC, NI 43-101, SAMREC

New York Stock Exchange – Rules SEC Rule ‘S-K 1300: Modernization of
Property Disclosure for Mining Registrants’ issued 2019 (JORC, NI 43-101)

Toronto Stock Exchange – CIM NI 43-101

Hong Kong Stock Exchange – Chapter 18 rules, (JORC, SAMREC, NI 43-101,

VALMIN)

Singapore Exchange – Rule 442 (JORC, NI 43-101, PERC, VALMIN)

Australian Stock Exchange – ASX and ASIC rules. JORC, VALMIN

PAGE 18
COMPLIANCE REPORTING
OVERVIEW FOR RESOURCES
AND RESERVES
• Key international reporting codes
(JORC/NI 43-101)
• What is CRIRSCO, other systems
(Russia and China)
• UMREK development
• RPM’s Turkey experience and
thoughts
WHY REPORT YOUR RESOURCES AND RESERVES UNDER
INTERNATIONAL REPORTING STANDARDS
• Why go to the effort:
• Provides confidence to investors that a minimum level of confidence has been
reached prior to reporting resources and reserves
• Allows potential investors to look at your project on a like for like basis and do
comparisons with other projects
• Required by 99% of the main international investors to the mining industry
• If done in parallel to local country reporting standards is not a large cost to a
Company and provides the Company with more options for raising capital
 DEVELOPMENT OF INTERNATIONAL REPORTING
STANDARDS

• Late 1960’s Poseidon Nickel in Australia • Late 1990’s Bre-X scandal in Canada

• JORC (Joint Ore Reserves Committee) formed 1971 to bring
confidence to investors, incorporated into ASX rules in 1989,
updated 2004 and 2012
• Code aimed at providing consistent disclosure to investors.
PAGE 22
• National Instrument 43-101 introduced in 2000 to protect investors
from unsubstantiated disclosures
• Primarily for securities disclosure, involves substantially more
technical disclosure to the market
CURRENT CODES
• Natively developed and most • Developed under the guidelines of
commonly used internationally: CRIRSCO

With the introduction of JORC 2012 the difference

between both NI 43-101 and JORC are not material.
NI 43-101 reports were never intended to be
voluminous but were meant to be a summary in a
PAGE 23
similar way as JORC Table 1.
 INTERNATIONAL PUBLIC REPORTING CODES
• What do the Codes do (JORC):
• Sets minimum standards for public
reporting of Exploration Results,
Mineral Resources, and Ore Reserves
• Provides a mandatory system for
classification of tonnage/grade
estimates according to geological
confidence and technical/economic
considerations
• Requires Public Reports to be based on
work undertaken by a Qualified or
Competent Person; describes the
qualifications and type of experience
required to be a Competent Person
• Provides extensive guidelines on the
criteria to be considered when preparing
reports on Exploration Targets,
Exploration Results, Mineral Resources,
and Ore Reserves
PAGE 24
• What do the Codes not do (JORC):
• Does not regulate the procedures used
by Competent Persons to estimate and
classify Mineral Resources and Ore
Reserves
• It is a Code for public reporting
• Does not regulate companies’ internal
classification or reporting systems
• JORC does not deal with breaches of the
Code:
• Breaches by companies are dealt with by
the listing boards ASX, TSX etc…and their
regulators
• Breaches by Competent Persons are dealt
with under the code of ethics of AIG,
AusIMM, SME, CIM or the Recognised
Professional Organisation they belong to
 THE JORC CODE – PRINCIPLES-BASED, NOT
PRESCRIPTIVE (CLAUSE 4)

Transparency
clear unambiguous
presentation

PAGE 25
 THE JORC CODE – PRINCIPLES-BASED, NOT
PRESCRIPTIVE (CLAUSE 4)

Transparency
clear unambiguous
presentation

Materiality
all reasonable
information
expected

PAGE 26
 THE JORC CODE – PRINCIPLES-BASED, NOT
PRESCRIPTIVE (CLAUSE 4)

Transparency
clear unambiguous
presentation

Competence Materiality
based on work all reasonable
by Competent Person information
expected

PAGE 27
 THE JORC CODE – PRINCIPLES-BASED, NOT
PRESCRIPTIVE (CLAUSE 4)

Transparency
clear unambiguous
presentation

JORC
Code
Compliant
Reports
Competence Materiality
based on work all reasonable
by Competent Person information
expected

PAGE 28
 JORC CLASSIFICATION SYSTEM

Last updated in 2012 (coal guidelines updated in

2014 for Coal Resources only with Coal Reserves
covered under the JORC 2012 Code)

There is no path for conversion of Inferred Resource

to Ore Reserves, but these can be used to define
your ultimate project size and LOM schedule in
specific cases, not in determining the economics of
the project

JORC 2012 key changes:

• mandated disclosure of a JORC Table 1
• requires a PFS level of confidence in the
studies that underpin Ore Reserves
• added modifying factors for reporting of Ore
Reserves, namely infrastructure and
government factors

PAGE 29
 WHAT IS A COMPETENT PERSON?
Unlike most UNECE codes which clearly outline how to estimate resources and reserves International
Codes rely on a Competent (Qualified) Person to determine the appropriate method for estimating and
classifying resources and reserves.

Can you defend your Competence in a group of peers?

Just because you have 30 years of experience as a geologist it does not make you Competent to sign off on a
resource estimate if the method used to estimate it such as block modelling etc…. is not something you are familiar
with.
Similarly if you are a highly experienced block modeler but have never works on the style of mineralization you cannot
be a Competent Person.
PAGE 30
 REPORTING CODES – WHY JORC IS CONSIDERED
INTERNATIONAL
JORC is a truly global code which today is
accepted as the basis for reporting
resources and reserves in 6 of the worlds
global Equity Markets.

It can also be used under special

circumstances on 3 further equity markets,
usually for dual listed companies

Reporting of resources and reserves on

equity markets is regulated by both the
JORC Code and more importantly each
equity markets unique listing rules. A
competent person needs to be familiar with
both

PAGE 31
 OTHER REPORTING CODES
 International system places responsibility on Competent Person’s judgment, code
provides consistent framework and brings confidence to investors

 Russian/Chinese system is rigid and prescribed, no room for professional judgment

 Some Pros and Cons to both systems

 1994 CRIRSCO (Combined Reserves International Reporting Standards

Committee) formed to create set of standard international definitions. This is not a
Code per say but a set of unified guidelines to allow countries to develop their own
codes which align with JORC and NI 43-101.

 Having a standard basis for reporting of resources and reserves in public markets
allows investors to compare projects on a like for like basis and encourages
investment.

PAGE 32
 RUSSIAN / CHINESE CLASSIFICATION SYSTEM

PAGE 33
 GUIDE TO MAPPING BETWEEN RUSSIAN/CHINESE AND
INTERNATIONAL
• This comparison between the
CRIRSCO/JORC Systems and the
UNECE System used by China
and Russia is an example only and
not a guide for direct correlation
between the schemes.

• In practice, how a resource

estimate converts between the two
systems will depend on the nature
of the deposit, the data available,
and ultimately the Competent
UNECE – CRIRSCO mapping Person’s interpretation of all
From Reserves classification systems around the world. Henley and Allington 2012 material aspects of the estimate.

PAGE 34
 UMREK

• Developed under the guidelines of CRIRSCO in 2017

• Aimed to form the basis for reporting of resources and reserves on the
Turkey Stock Exchange which has very few natural resource companies
listed to date
• At this stage unlikely to be readily accepted by international investors but as
based on CRIRSCO will allow Projects to be reported readily easily under
JORC or NI 43-101 standards

PAGE 35
 RPMGLOBAL TURKEY EXPERIENCE MAP

PAGE 36
 RPM’S EXPERIENCES IN TURKEY
• Significant amount of historical drilling completed by MTA, work done to a high
standard but some challenges around coal quality sampling;
• Most private company's in Turkey in the metals space have staff with international
experience meaning that the exploration is done well and in line with international
standards;
• Great advances being made in the development of a Turkey domestic technical
experts who are able to utilize industry leading software for resource estimation
and moving into mine planning and scheduling;
• Same as in other countries, geologists need to remember they are geologists first!
• Mining studies still have a ways to go. Main criticism being that they fail to consider
multiple options before choosing what is the best option to take forward.

PAGE 37
TYPES OF STUDIES AND
THEIR ACCURACY AND
THEIR USE AS ENGINEERING
COST ESTIMATES
ENGINEERING COST ESTIMATES AND THEIR USE
Summary
Many different types of engineering studies – none provide a cost “point estimate,” but instead a
range around an expected result
• PEA-Scoping-Class 5
• Conceptual planning studies
• Accuracy -50%/+100%
• Prefeasibility – Class 4
• To define a single path forward (trade off studies)
• Allows statement of resources and reserves
• Accuracy -30%/+50%
• Feasibility – Class 3
• Use of Funding authorization
• Accuracy -10%/+30%
• Accuracy of the engineering estimate used for funding authorization is not as “tight” as we
would like to believe which may lead to cost overruns – but the cost estimate may be accurate
within the expected range.
SOURCE OF DATA
• Data/Standard comes from common, often referenced sources
• AACEi International Recommended Practice No. 17R-97, 18R-97, 47R-11
• CIM Definition Standard-For Mineral Resources and Minerals Reserves, CIM
Standing Committee on Reserve Definitions.
• RPM Perspective #129, https://www.rpmglobal.com/wp-
content/uploads/mp/files/resources/files/rpm-perspectives-2015-128.pdf
MINING STUDIES ARE UNUSUALLY COMPLEX
• Mining estimates requires
information from many
areas such as:
• Permitting
• Drilling and exploration
• Underground and/or
surface mining
• Ore handling
• Milling and metallurgical
processes
• Tailings and water
management
• On-site and off-site
infrastructure
TYPES OF STUDIES AND PURPOSES
• Industry accepted path
• Scoping/PEA
• Prefeasibility
• Feasibility
• Can/should you skip steps?
• Terms of scoping/prefeasibility/feasibility is unique to mining
• Other industries uses study “Class” to define accuracy and engineering status
GOVERNING BODIES
• Canada
• NI43-101 - Canadian Securities Administrators National Instrument 43-101,
Standard of Disclosure for Mineral Projects
• Australia and New Zealand
• JORC or the Joint Ore Reserves Committee
• USA
• United States Securities and Exchange Commission (SEC) Regulation S-K Item
102, Modernization of Property Disclosures for Mining Registrants.
• United Kingdom – Institution of Metals, Minerals and Mining (IMMM) or Pan-
European Reserves and Resources Reporting Committee (PERC)
EVOLUTIONARY NATURE OF STUDIES
• NI43-101 and JORC focuses on evolutionary nature of studies
1) Geologic knowledge and confidence – including volume and purity of the
mineral ores based on exploration results
2) Modifying factors influencing the profitability of extraction including:
• Mining
• Processing-Metallurgical
• Economic
• Marketing
• Legal
• Environmental
• Socio-economic
• Governmental factors
RESOURCES VS RESERVES

• Geology results in a “Resource” which may or may not be profitable but has
to have reasonable prospect for eventual economic extraction.
• Resource categories are defined as “Indicated,” “Inferred” or “Measured”
depending on degree of confidence
• Modifying factors establish profitability “at a point in time” and define a
“Reserve”
• Reserve categories are “Proved/Proven” or “Probable” depending on degree of
confidence
 TYPES OF STUDIES (NI43-101/CIM)
• Feasibility Study (FS) – purpose is to
justify full funding authorization
“…means a comprehensive study of a mineral deposit in which all geological, engineering,
legal, operating, economic, social, environmental and other relevant factors are considered
in sufficient detail that it could reasonably serve as the basis for a final decision by a
financial institution to finance the development of the deposit for mineral production.”

• Prefeasibility Study (PFS) – purpose is

to choose a single path forward for further
study, allows statement of Reserves
“…means a comprehensive study of the variability of a mineral project that has advanced
to a stage where the mining method, in the case of underground mining or the pit
configuration in the case of an opn pit has been established and an effective method of
mineral processing has been determined and includes a financial analysis based on
reasonable assumptions of technical, engineering, legal, operating, economic, social, and
environmental factors and the evaluation of other relevant factors which are sufficient for a
qualified person, acting reasonably, to determine if all or part of the mineral resource may
be classified as a mineral reserve.”

• Preliminary Economic Analysis (PEA)

– anything that isn’t a Feasibility Study or
a Prefeasibility Study
SCOPING STUDIES/PEA/CLASS 5 STUDY
Project definition: 0% - 2%
Accuracy: -50%/+100%
Purpose: Planning, strategic
Geology: inferred resources, simple geologic model and grade estimate
Mining: conceptual, simple mine schedule, opex/capex scaled from similar operations
Processing: conceptual flowsheet (BFD), opex/capex scaled from similar operations

Costs = “capacity factored, parametric models, or analogy”

• Capacity factored - “I built one that processed 36Mtpa for $2 billion, and now I want to build one for
48Mtpa”
Costtarget = Costbase * (capacitytarget / capacitybase)0.6
Costtarget = US$2.4B

• Analogy: “I built one of these about 4 years ago and it cost about $750 million”
Study can be as quick as a couple of weeks.
PREFEASIBILITY STUDY/CLASS 4
Project definition: 1% - 15%
Accuracy: -30%/+50%
Purpose: Trade-off studies and determine a single path forward
Geology: Preliminary geologic model sufficient to support Reserve estimates (M&I Resource)
Mining: detailed mine plan with supporting detail, geotech & hydrology. Opex/capex from recent budget
pricing.
Processing: probable flowsheet identified with mass balances, met test work essentially complete.
Opex/capex based on recent budgetary pricing and quantity take-offs, but can use some cost factoring.
FEASIBILITY STUDY/CLASS 3
Project definition: 10%-40%
Accuracy: -10%/+30%
Purpose: Project definition and full funding authorization
Geology: Detailed geologic model
Mining: Proven and Probable Reserves based on detailed mine plans with full supporting detail.
Opex/capex based on recent vendor quotes.
Processing: detailed processing plans with full PID’s, mass balances, and detailed equipment lists.
Opex/capex based on detailed first principals and recent vendor quotes.
WHY THE RANGE IN THE ESTIMATE?
Engineering Estimate Accuracy
• Modifying factors
• Percent completeness of
engineering
• Skill of the Estimator
What comes after the FS (Class 3)?
• Front End Engineering Design
(FEED) studies – Class 2
• Detailed Design – Class 1
• Build it!
Projects can fail to progress at any
stage of the study stage. Lose early.
From AACEi 47R-11: Cost Estimate Classification system – As applied in
the Mining Mineral Processing Industries
 A FEW COMMENTS
• Engineering studies are not as “accurate”
as we are led to believe
Project CAPEX mean
• PEA and PFS studies - never intended to
be used for final Project financing
• Feasibility Studies - used for financial
decisions, but have wide accuracy range
• FS Accuracy = -10%/+30%
Project CAPEX distribution

• Overruns are much more common than

underruns
• We rarely see final costs on the lower end
of the cost range
• Cost distributions are always right-skewed
A FEW COMMENTS
• These study types don’t exist under NI43-101 or JORC code:
• “bankable feasibility study”
• “definitive feasibility study”
IMPLICATIONS – RISK EVALUATION
• Engineering study accuracy depends on:
• Degree of completeness/definition
• Skill of the engineering company
• Experience of the estimator
• Project Execution is critical to cost control and achieving estimate cost
• Owners team skill and experience
• Early and accurate scope definition and maintaining this scope is critical
• The owner can not put too much time into the Project
• Construction team skill and ownership cannot be undervalued
• Attention to Project budget, schedule and trends
• Execution plan and commissioning must be carefully thought out
• RPM encourages use of a range of costs in financial modeling
ENVIRONMENTAL AND
SOCIAL REQUIREMENTS,
WHY ARE THESE
IMPORTANT IN TODAYS
CONNECTED WORLD
• Social License to Operate
• EP3 / IFC PS / EBRD
 SOCIAL LICENCE TO OPERATE
What is it: The Social Licence has been defined as
existing when a project has the ongoing approval
within the local community and other stakeholders,
ongoing approval or broad social acceptance and, most
frequently, as ongoing acceptance.
Starts from the Exploration Stage but needs to be
maintained through all phases of a project through to
closure.

Davis & Franks, 2011: the cost of conflict with local communities in the extractive industry

PAGE 56
 GOOD GUIDING PRINCIPLES
• Most international bank lenders are either signatory to
Equator Principle 3 and abide by its rules or use a mix of
EP3 and IFC PS.
• Equator Principles is a method of determining, assessing
and managing environmental and social risk in project Principle 1: Review and Categorisation
finance. Principle 2: Environmental and Social Assessment
• Catch all for any industry results in some lenders
Principle 3: Applicable Environmental and Social Standards
interpretation being different to each other which needs
to be managed during credit and risk committee Principle 4: Environmental and Social Management System
clearances. and Equator Principles Action Plan

• Applies to all activities which have happened in the past
so it is critical that if you want to seek funding for your
project in the future from international lenders you are
aware of these principles and abide by them.
• Theoretically not required if you are sourcing funding
locally or internally. Usually not required by Private Equity
lenders.
Principle 5: Stakeholder Engagement
Principle 6: Grievance Mechanism
Principle 7: Independent Review
Principle 8: Covenants
Principle 9: Independent Monitoring and Reporting

• RPM considers these good practice and can guide Principle 10: Reporting and Transparency
project owners to ensure maintenance of their ‘social http://equator-principles.com/
licence to operate’
• EP4 is under development
PAGE 57
 OTHER KEY GUIDELINES
• Most international commercial banks
will use a combination of Equator
Principal and IFC Performance
Standard
PAGE 58
• Lenders like the European Bank of
Reconstruction and Development (EBRD)
have developed their own standards which
whilst similar to EP3 and IFC PS have some
unique difference reflective of their country
of origin. Key to this:
• Emission standards applied are EU
defined
• EBRD standards apply to all entities of
the borrowing company whether they are
mining related or not.
EVOLUTION OF PROJECT
FINANCE THROUGH
COMMERCIAL DEBT
• Initial Technical Review – to loan or
not to loan
• Construction Phase
• Completion Phase
• Post Completion Phase
 COMMERCIAL DEBT
• Most active lead banks in this space globally:
• The role of the Lenders Engineer in the execution of
• Societe General
commercial debt occurs in 4 well defined stages with varying
• BNPP responsibility for each.
• ING
1. Initial Technical Review – to loan or not to loan
• Macquarie
2. Construction Phase
• Other banks which will participate in consortiums but 3. Completion Phase
rarely lead: Credit Agricole, Natixis, HSBC, Scotia
(Canada only), Australian Big 4 (NAB, CBA, WB, ANZ) 4. Post Completion Phase

• Often can only invest in countries where they have a • Lenders Engineer is usually mandated by the technical bank
local partner (BNPP – TEB in Turkey etc…) initially with the engagement novating to the Loan Agency once
draw down occurs. Commercial considerations are usually the
• Usually work as lending ‘Consortiums’ USD 50-80M responsibility of the borrower with the fees payable included in
usual individual contribution to share risk and workload
the loan facility.
• Banks will take three specific roles in the Consortium
• Technical Bank
• Document Bank
• Legal Bank
• Borrower still required to provide a portion of equity
(this can be the hardest portion of the capital raising as
usually dilutive to the shareholders, will provide
opportunity for offtakers)

PAGE 60
 1 - INITIAL TECHNICAL REVIEW - LENDERS ENGINEER
• This phase is used by most Financiers at varying
level of detail. (Private Equity, Commercial Banks
and Import Export Credit Agency)
• Purpose of a Lenders Engineer Technical Review:
• To identify and allow the Borrower and Lenders
to mitigate the risks (fresh set of eyes)
• To provide technical inputs to the lenders which
helps:
• develop the appropriate legal and funding
structure. This may include the definition of
‘Technical Condition Precedent’ and ‘Condition
Subsequent’ to the ‘Loan Facility Agreement’.
• determine the risk reward relationship in order to
correctly price the debt.
PAGE 61
• Lenders Engineer Key Tasks:
• Review supporting documents within the data room.
• Site Visit
• Geology
• Mining
• Processing and Infrastructure
• Social and Environmental
• Geotechnical/Hydrological/Tailings
Visit will include discussions with your key third party advisors,
visiting to local communities and authority’s (E&S)
• Draft Lenders Engineer Review Report provided to Lenders for their
review
• May lead to further in depth review of key technical risks
• Finalisation of the Report
• Review technical aspects of key contracts (performance guarantees,
etc….)
• Define appropriate Condition Precedent and Subsequent tasks if
required to mitigate technical project risk.
• Sign off on Condition Precedent item completion.
• Assist in drafting technical aspects of the Completion Tests and
Certificates (Physical and Performance – Mine and Plant)
• Define construction and monthly reporting templates
• Work with Lenders to explain technical risks to the banks own risk
and credit committees to allow ‘first draw down’
• DURATION: 4-12 months
 1 - INITIAL TECHNICAL REVIEW - AREAS AND KEY RISKS
• All aspects of the project study will be assessed
• Risks identified will be managed by the lenders in
various ways including ‘insurance’, ‘hedging’ and
more relevant to the Lenders Engineer role
development of ‘Condition Precedents’, ‘Condition
Subsequent’ as well as ‘Action Plans’ which can all
be included in the “Loan Facility Agreement” and
become legally binding.
PAGE 62
• Key Risks which are considered before “First
Draw Down”:
• Orebody risk
• Technology risk (mining and processing)
• Operational risk
• Market risk
• Infrastructure risk (mine gate supply such as power
and water as well as key infrastructure especially
tailings storage)
• Political risk (resource nationalization, others)
• Construction risk (schedule, ramp up, cost overrun)
• Environmental risk (biodiversity, emissions,
permitting)
• Social risk (relocation, grievances, all aspects of
social license to operate)
 2 - CONSTRUCTION PHASE
• After all ‘Conditions Precedents’ have been
meet the Construction Phase is the period
between ‘First Draw Down’ and the point at
which the project is ‘Financially Complete’
traditionally defined as the point when
commissioning can commence.
• Bank will closely monitor this construction
phase and seek the Lenders Engineer sign off
for key milestone draw downs
• Actual construction progress against costs
incurred vs cost to complete estimates form a
key focus in this stage
PAGE 63
• Lenders Engineer Responsibility:
• Conduct quarterly visits to verify construction
progress;
• Monitor and ensure completion of ‘Condition
Subsequent’ items;
• Monitor spend to date vs budget vs cost to
complete;
• Opine on cost to complete, construction
schedule;
• Approve and quantify cost overrun account
draw down;
• Sign off on budgets.
• DURATION: 12-24+ months
 3 - COMPLETION PHASE
• Completion Phase is the period between
the point at which the project is ‘Financially
Complete’ and when the Project passes its
‘Completion Tests’.
• Whilst this is the shortest of the Project
Finance periods it is also the highest risk
one for the banks and sponsors as it is
when operational and technological risks
become apparent.
• May result in sponsors completion
guarantees or contractors performance
bonds’ being called in…. or lenders having
to provide further debt to get the project
running properly.
PAGE 64
• Lenders Engineer Responsibility:
• Monitor project commissioning ramp up
performance (monthly)
• Monitor and sign off on the Project having
meet its ‘Completion Tests’:
• Physical completion
• Plant performance tests
• Mine performance tests
• Tests are usually run over a 90 day period.
• Complete quarterly or 6 monthly inspections
of the site dependent on complexity of project
• DURATION: 4-8 months
 4 - POST COMPLETION PHASE
• Post Completion Phase is the period
between the point at which the project has
passed its ‘Completion Tests’ and the loan
is fully repaid.
• This is the longest of the Project Finance
periods.
• Project financial state is monitored through
ratio of cashflow to outstanding debt.
PAGE 65
• Lenders Engineer Responsibility:
• Conduct yearly visits to the project site
• Review the monthly and quarterly reports
produced by the borrower
• Provide final post repayment project condition
sign off for the lenders. This is especially
important from a E&S perspective.
• DURATION: Usually <4 years
 SOME LEARNINGS
• Openness and communication is key to
this process succeeding, no surprise policy
either in the initial review or any subsequently
stage of the loan.
• Lenders are enablers of projects, the last
thing a lender wants is for a Borrower to fail to
payback their loan. However as Lenders often
do not have recourse to the balance sheet of
the project sponsors they must be absolutely
sure (as much as possible) that the project
will be brought to account.
• The best way for a lenders engineer to protect
the interest of the Lender is through helping
the Borrower to succeed by sharing any
recent and relevant experience, flagging risks
and opportunities early and helping the
borrower mitigate or leverage these.
PAGE 66
• How to prepare yourself:
• Have your work independently peer
reviewed regularly – fresh thinking
• Prepare your data room - this is an
insight into the Company’s
professionalism and is often poorly
executed putting a bad impression
before you even start the review
• One source of the truth!
• Make sure to have your key experts with
historical knowledge of the project on
hand
• More communication is better than less
• Work as a single Team as much as possible
CLOSING THOUGHTS
 - THANK YOU -

www.rpmglobal.com

AUSTRALIA | BRAZIL | CANADA | CHILE | CHINA | HONG KONG | INDIA | INDONESIA

MONGOLIA | RUSSIA | SOUTH AFRICA | TURKEY | USA