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By D. W. Loughridge

INTRODUCTION Raising capital in the 1990s is a timely subject. However, many of us thought why should raising capital in the 1990s prove to be unlike it was in the 19805, the 1970s, the 1%0s, or earlier? There are a lot of creative people in banking and in corporate treasury departments. New tools and techniques are continuing to emerge, many of which are discussed in other papers in this book. While we have new financing tools at our disposal, the underlying issue has not changed. Projects and investments must be judged on their own merits. If they cannot be justified by conventional financial analysis, they should not be built. If they can be justified, it is likely that the financing will be available. The challenges faced in raising capital in this decade will persist to the next. The issues of the 1980s -- currency fluctuation, disruptive merger and acquisition activity, commodity price volatility, political risk, and debt crisis -- will all persist in an increasingly international business environment. I will focus on the financing we have just completed for the Escondida Copper Project in Chile. The Escondida financing is structured along the classic project financing model developed in the late 1970s, but it deals with issues of the 1980s and the 1990s. The financing was intriguing, not just because of the technical issues involved, but also the challenge of reaching an agreement in a large and diverse group. Escondida had the one essential feature that made its financing possible. It was commercially very attractive. It would produce at low cost a commodity (copper concentrates) that direct consumers felt would be in tight supply. The project had the direct support not only of its sponsors, but also its customers, and, very importantly, its host government. The non- recourse financing of Escondida would not have been possible without the support of these parties, and without the robust economics that made this effort worthwhile. The issue was more complicated. Operations in all parts of the world entail some political exposure. This project is in Chile, where there was a constitutional requirement that a plebescite be held when the project would be in its early stages. This plebescite would determine the fate of a 15 year old military dictatorship. The project is copper, a commodity generally deemed to be in surplus. Copper has a history of price volatility (whose price has varied from $.58 to $1.53 per pound over the past two years). It is politically sensitive, not only in Chile, but in the United States, Canada and other developed countries. The project is international, with all the problems of dealing with a variety of currencies, a variety of cultures, and a variety of laws and commercial practices. The project is also large and capital intensive, with a total cost of U.S. $1.1 billion. ESCONDIDA PROJECT Escondida, the largest known copper ore body in the world, was discovered in March of 1981, by Utah International in a joint venture with Getty Oil Company. In 1984, both Utah and Getty were involved in ownership changes, Utah being acquired by BHP. A later restructuring of the ownership of Escondida resulted in BHP, as manager, carrying a 60% interest, Rio Tinto-Zinc Corporation (RTZ) 30%, and a consortium of Japanese companies led by Mitsubishi Corporation with 10%. The Japanese consortium is incorporated as JECO (Japan Escondida Corporation). This ownership structure, which spread ownership around the world, was the first tangible step toward managing both the commercial and political risk associated with the project.

Jan 1, 1990

By G. G. Reed

G.G. Reed, Jr. The authors are to be commended for finding a material for pellets binding that we were unable to uncover during the investigations that led to US Patent No. 3,748,116, "Method for producing metallic iron powder from iron ore concentrate," July 24, 1973, by G.G. Reed, Jr., J.M. Karpinski, and S.V. Fox. This patent concerns a method of processing "super"-concentrates prepared from magnetite or "blue dust" into molding-grade metallic iron powder for use as a bulk commodity, in contrast to current methods which produce small batches that are custom-blended with additives and/or alloys to customer specifications. The one thing we had not found at that time was an organic binder (mineral-matter-free) that would allow induration to produce hardened pellets that would survive SL/RN Direct Reduction. Peridur appears to provide this missing link needed for large scale (200 t/a, or 220,460 stpy) single line plant capacity consistent with a low market price to ensure greatly broadened use of metallic iron powder. I hope that industry will adopt this combination so that metallic iron powder usage can fulfill its potential. ?

Jan 1, 1986

By Dean S. Rogers

The conventional role of exploration, development and grade control is examined in this paper within the context of the many and varied types of gold occurrences which are found at the Dome Mine. The account endeavours to trace the development of the total ore evaluation process, from diamond drilling through the exploration and drifting stage, to the stope development and planning phase of the operation, with an emphasis on sampling techniques and assaying procedure. The concept of ore reserve calculations is developed and the practice of grade control is described. In summary, the role of the geological, the engineering and the mining department is presented in relation to the contribution each has to make in the evaluation and exploitation of ore from one of the world's classic Archean gold deposits.

Jan 1, 1985

By C. Richard Tinsley, Norman Miskelly, S. James Hodge

Construction of the Ranger uranium project, located 230 kms east of Darwin in the Northern Territory, Australia, commenced in January 1979. Energy Resources of Australia Ltd (ERA) was incorporated in February 1980 to acquire all the rights in the project. The total cost to ERA of these rights was A$407 million, made up of A$125 million in cash to the Federal Government and the issue of 125 million A$1.00 shares at par, plus a payment of A$16 million in cash to each of Peko-Wallsend Ltd. (Peko) and EZ Industries Ltd. (EZ). ERA's cash requirements to complete the project were estimated in October 1980 to be A$553 million. Project loans, secured by first ranking debenture stock, were arranged for a total of US$390 million, while second-ranking debenture loans totalling A$60 million were [ ] obtained from the vendors, Peko and EZ. Overseas participants (power utilities who had agreed to purchase uranium yellowcake under contract) arranged to take up 25% of the equity capital for A$102.5 million; Peko and EZ were allotted 30.5% each as satisfaction of vendors' consideration; and 14% representing A$57.5 million was issued to Australian residents in an underwritten public flotation in November, 1980. The loan and equity financing arrangements required the successful resolution of many complex and interlocking factors, including technical and economic feasibility, agreement with Aboriginal interests, compliance with Government policies, and securing of sales contracts.

Jan 1, 1985

By C. D. Jardine, D. G. Patton

Rapidly increasing energy costs and more rigid customer quality requirements necessitate improved control of pelletizing processes. With the introduction of dedicated microprocessor-based controllers, sophisticated control strategies are now possible. An application of this technology at Carol Project has resulted in fuel savings, improved pellet quality, and standardization of operating procedures. This was accomplished with no production loss by using a "building block" approach to design and equipment selection.

Jan 1, 1985

By L. S. Kolbert, C. H. Baab

Introduction In June 1981, the Electric Power Research Institute (EPRI) issued a report titled "Control Systems in Coal Preparation Plants" to determine the status of instrumentation and automation systems in the coal preparation industry. EPRI concluded that the control systems presently being employed in the US coal preparation plants "are relatively primitive compared with those in other mineral processing industries; and analytical instrumentation is virtually non-existent." With tighter specifications on the quality of steam coal, interest is increasing in more sophisticated control systems. One type of device that is currently assisting the preparation plant operator optimize and control the coal cleaning process is nuclear based instrumentation. Nuclear instrumentation includes methods for measuring weight, level, and density as well as for performing elemental analysis on coal. Major Features and Benefits of Nuclear Measurement and Analysis Systems There are many features and benefits of nuclear instrumentation. The major benefit is that nuclear instrumentation is non-contacting. The measuring heads do not contact the process materials. This enables measurements of corrosive, abrasive, or high temperature materials with no loss of performance, reliability, or useful life. Also, there are no moving parts to wear or be fouled by dust or corrosion. Installation is simple and inexpensive. For instance, density gauges are simply clamped onto existing pipe runs. Weigh scales and level switches usually require nothing more than welding brackets to customers' equipment. Once installed, routine maintenance can be performed without interrupting the process. Thus, nuclear instrumentation is highly reliable and easily installed and maintained. The operating life of the instrumentation is virtually unlimited. Principle of Operation Nuclear belt weigh scales, point level switches and density gauges all operate on the gamma-ray transmission principle. A beam of gamma radiation from a radioisotopic source is projected through the process material either on a belt, in a vessel, or in a pipe. Opposite the source is a radiation detector whose electrical output is proportional to the intensity of the radiation it absorbs. Gamma radiation is part of the same electromagnetic spectrum that encompasses light, infrared, and x-rays. In many respects, gamma radiation behaves much like light. However, it is far more penetrating and can be transmitted through considerable thickness of materials that are opaque to visible light, e.g., several inches of steel. Types of Nuclear Instrumentation in Coal Preparation Plants There are four types of nuclear instrumentation presently being employed in coal preparation plants. They are: •Belt Weigh Scales •Point Level Switches •Density Gauges •Coal Analysis Equipment. Each type of instrumentation has a number of potential applications within the plant. What follows is a discussion of three different types of devices and their applications. Weigh Scales In coal preparation plants, weighing instruments are used for measuring material throughput, totalized weight, and batch weight on conveyor belts and other transport equipment. They are also used on drag chain conveyors, vibrating conveyors, and screw conveyors. Weighing is important for receiving the run-of-mine coal, controlling mass flow, scheduling production, and loading and shipping the washed coal to market. There are two basic types of weighing instruments: gravimetric and nongravimetric devices. Gravimetric devices are units which measure the pull of gravity on the material being weighed. Nongravimetric devices are not dependent on the force of gravity on the sample. Nuclear weigh scales are the most prevalent nongravimetric devices used. The nuclear weigh scale works on the same basic principle as other nuclear gauges. The greater the quantity of material placed in the path of a radiation beam, the more radiation will be absorbed by the material. In weigh scales, Cesium 137 source is generally placed above the moving stream of material so that the radiation is directed through the material. An ion chamber radiation detector is on the opposite side of the material. The radiation passing to the detector generates a signal which is inversely proportional to the weight of the material present. This signal is amplified and integrated with the speed of the process flow yielding the weight. The weight is indicated and can be totalized for throughput, batch control, etc. In conclusion, radiation weighing methods have become well established in the coal preparation industry throughout the world. As mentioned before, this device finds its most

Jan 1, 1985

By Ross Glanville

INTRODUCTION The Optimum Production Rate (OPR) is one of the most important parameters in the evaluation of a mineral deposit. The OPR can also be expressed as the Optimum Mine Life (OML) in years since the expected mine life is determined by dividing the OPR per year into the estimated ore reserves. Unfortunately, very little time and effort has been directed towards the determination of the OPR. Instead, "rules of thumb" are often applied to select a mine life without due consideration of the economic implications of such a selection. A "justification" for a particular production rate is often based on a pre-conceived arbitrary requirement for a mine life of 5, 10, or 15 years, for example. In this paper it is demonstrated that such arbitrary selections for high-grade/low-tonnage mines (such as many underground gold/silver deposits) often lead to sub-optimal results. In fact, an apparently uneconomic deposit at an arbitrary production rate may be economic at the OPR. Consequently, investment opportunities may be overlooked if one analyzes mine properties based on arbitrary production rates. This paper analyzes the interrelationships of variables such as production rates, capital and operating costs, cut-off grades, discount rates, metal prices, etc. The analysis shows that the OML for high-grade/low-tonnage deposits is often in the range of two to four years. Although such mine lives intuitively appear too short to many individuals, it should be noted that, in the past, much of the mining industry became familiar with the economics of large scale mining operations. The rules of thumb developed for such large scale operations should not be applied to high-grade/low-tonnage mines such as many of the underground gold deposits. DEFINITION OF OPTIMUM PRODUCTION RATE The OPR is selected on the basis of maximizing the net present value of the after-tax cash flows. However, as discussed later in this paper, the production rate selected for a particular mine may be somewhat higher or lower than the theoretical OPR as a result of other variables such as: 1) the probability or expectation of additional reserves being discovered 2) the likelihood of being able to custom mill nearby deposits owned by others 3) the configuration or attitude of the orebody, which may place upper limits on the production rate 4) the residual, or salvage values, of the mine/mill facilities COMPARISON BETWEEN DIFFERENT PRODUCTION RATES For an orebody with definite physical cutoffs*, or boundaries (such as faults or unconformities), the total ore reserves at different production rates may be identical. Consequently, for such an orebody, varying production rates result in differing mine lives. Although the metallurgical recoveries, the mine dilution, and other similar physical parameters may vary slightly at different production rates, the major differences are the capital costs and operating costs per ton. The ramifications of these differences are especially important at low production rates (up to approximately 1000 tons per day), but can also be significant at higher production rates.

Jan 1, 1985

By Michael A. Gustafson, Fernando B. Sotelino

INTRODUCTION The degree of success of any new project will ultimately depend on two factors: (i) the underlying economic strength of the project; and (ii) how successfully the parties involved can coordinate their interests to establish a financing structure which indeed capitalizes on the project's inherent economic attractiveness. A project's underlying economic attractiveness is determined by its inherent comparative advantage in accessing the factors of production, combining these factors of production to create a product and marketing this product. Initially, the decision regarding whether to go ahead with the project - the go/no go decision - has to be based on its total ability to generate cash flow returns to project participants to compensate them for resources committed and risks undertaken. The extent to which project sponsors will actually benefit from the project's inherent economic attractiveness is fundamentally dependent on their ability to establish the long-term financing arrangement which best meets the objectives and constraints of each project participant and sources the most advantageous funding. The decision regarding the financing of the project, the "how-to-go" decision, is then an attempt to find the capital structure, consistent with market terms and conditions and sound financial management policies which will best: (i) match planned outflows with cash inflows; and (ii) maximize the return for project sponsors. This article makes use of a case study to illustrate the analytical process involved in dealing with the go/no go and the how-to-go decisions on a project. Though most commonly applied to project finance situations, the guideline described herein is equally applicable to other financing situations, such as leveraged buyouts and debt restructurings, where timely repayment of debt depends largely on the future cash flows to be generated by the entity being financed. Our case study is of a hypothetical expansion of an existing copper mining operation in Latin America. The company, Latin American Copper (LAC) currently has 147 million metric tons of proven sulphide ore reserves. The existing mine complex consists of an open pit mining operation and a conventional flotation plant with a processing capacity of 20,000 metric tons of ore per day. LAC sells copper concentrates primarily to Japanese custom smelters. The mine has been in operation for 5 years, fine copper production last year was 108,240 metric tons, and LAC currently has assets of $175 million and net worth of $135 million. Due to a recent increase in proven reserves, LAC is considering doubling the treatment capacity of its flotation plant to 40,000 tons per day, and expanding its mining capacity to meet the additional concentrator capacity (the "Project"). Project capital expenditures and incremental working capital have been estimated at approximately $210 million. The construction period is expected to cover one year, including a three-month start-up phase. The Project is to be funded by a combination of equity, senior debt, including both supplier credits and/or commercial bank term loans, and subordinated debt. LAC's shareholders are willing to commit a maximum of $50 million to the Project. A government development agency, which is also a minority shareholder, might be willing to lend approximately $40 million to LAC in the form of subordinated notes, depending on the ability of the Project to generate foreign exchange reserves. Commercial banks cannot be expected to offer loans with maturities longer than ten years. The Project is expected to increase the value of the firm because: (i) It will solidify the Company's position as a low-cost copper producer by taking advantage of economies of scale. As a result of the expansion, cash production costs are expected to decrease 7.0[c]/lb. and all-in costs 11.0[c]/lb; (ii) The potential earnings stream from the sulphide ore reserves will be realized

Jan 1, 1985

By Peter A. Allen

INTRODUCTION Lac Minerals Ltd., a significant North American producer of gold and other metals for over three decades, recently completed the financing for its third discovery in an eight year period. From 1975 to 1982, three important gold deposits in Quebec and Ontario: namely Bousquet, Doyon and Hemlo, were located and tested by company geologists. When current development plans are complete, Lac will have injected $400 million into these deposits. A discussion of these projects and their financing reveals some extraordinary challenges faced by top mining management. Responses to these challenges developed by Lac management may interest executives planning to proceed with new North American gold or base metal mines. MINE DE BOUSQUET In 1976, we explored a property containing a large low grade surface gold deposit. The geologial setting was exciting and we tested recent rethinking about the volcanigenic genesis of gold and base metal occurrences. These ideas helped pus to persist in drilling a nearby conductor and 600,000 ton, 0.22 ounce/ton orebody was outlined. With gold at $Cdn.150 per ounce the feasibility was approved and work started February 1978. Availability of a company custom mill 35 miles away reduced our immediate capital needs to $8.5 million. First of all, understanding the geological significance of results at Bousquet was critical. Mine and surface exploration geologists at Lac are continually and closely working together to better understand the nature of gold deposits in the Shield. This management emphasis on both pure and mine geology meant that a much larger ore reserve could confidently be predicted. (A proposal to quickly develop and ship the ore to a nearby company mine was discarded.) Instead of designing just for the initial plan of 500 tons per day we therefore included headframe, shaft and hoisting capacity for 1,700 tons and provided a compartment for future shaft deepening. These prebuilt additions were welcomed within two years. The type of collaboration whereby surface and mine geologists make study and field projects of each other's problems sets the foundation for this predictive ability. At Lac, the traditional responsibility for and supervision of the mine geologist by the mine manager is modified by this collaboration. This adds interest and scope to the geologist's work and lets him think beyond production requirements. Besides such management considerations, dedicated, professional geologists with integrity and lots of practical experience are needed to plan successful developments like Bousquet. Second, projecting future bullion revenue was critical and our experience selling production for future delivery gave us a way to ensure that loan repayment at term would not be jeopardized by falling metal prices. Output from a single mine is often reduced or curtailed for numerous reasons, so "selling forward" is done best and with least risk by companies like Lac with more than one or two producing locations for that metal. At first, a forward marketing program was considered unwise, speculative and unorthodox by analysts and other producers. Declining markets in the early 1980s prolonged gold project capital recoveries however, and critics were better able to appreciate the usefulness of such a tool. The notion that gold miners shouldn't sell forward is rooted in the belief that long-run gold prices will rise as modern social theory implementation in democracies inevitably erodes currency values. Selling against this trend goes against this industry belief or "ethic" and is at odds with the company shareholder who expects the gold price to rise not fall. Nonetheless, an efficient tool is available to the gold producer (not to most other metal producers) to quickly disengage from adverse price trends or to lock in spot prices instantaneously for two years or more of profits. Gold had recently retreated from U.S.$200 to $104 and now had reversed to $150. Lac had been forced to close several of its producers during the late 1960s because central bank-controlled

Jan 1, 1985

By Canada Ernst & Whinney

INTRODUCTION The principal objective of this chapter is to provide guidance in understanding and making effective use of published financial statements of mining companies. Although financial statements only represent a gathering together of information relevant to an enterprise's financial position and results of operations, they increasingly reflect the complexities of the modern day business environment. In the mining industry, a wide variety of accounting practices have evolved to deal with the unique aspects of the business in the absence of authoritative accounting pronouncements from standard-setting bodies. Given such complexities and divergent practices, financial statements of mining companies are not easily understood and cannot be used effectively as a tool in decision-making without a basic knowledge of fundamental accounting concepts, generally accepted accounting principles and their application in the mining industry. As such, this chapter is not restricted to a discussion of the accounting for the unique aspects of the mining industry. These aspects are dealt with at length but the text also includes a discussion of general accounting concepts and practices which have wide application in the mining industry. Frequent references are made in the text to international practices and to specific rules and requirements of individual countries. In this respect, the scope is restricted to four major mining environments, Canada, the UK, the US and Australia, all of which have made significant contributions to the development of generally accepted accounting principles. Acknowledgements This chapter was prepared under the direction of Ian Murray of Ernst & Whinney in Toronto, Canada. Contributions were received from Graham Butt, Mark O'Sullivan and Dominic Robinson, all from Ernst & Whinney in Toronto and Bill Duvall and Tom Schoenbaechler from Ernst & Whinney in Louisville, Kentucky, US. The authors would also like to acknowledge the assistance received from David Ferguson, Don MacLean, David Taylor and Susan Zoutman from Ernst & Whinney, Toronto, from the UK and Australian practices of Ernst & Whinney and from Ernst & Whinney International. FINANCIAL STATEMENTS - ELEMENTS AND CONCEPTS Financial statements were originally a stewardship report to owners to satisfy them that management had given a proper account of the resources with which it had been entrusted. Today, the number of users of financial statements has expanded to include the following groups: - shareholders, present and prospective; - lenders, present and prospective; - financial analysts; - regulatory authorities; - taxing authorities; - labour unions and employees; and - creditors and customers. The expectations of these user groups differ. For example, investors and lenders require information that will indicate the adequacy of their security and the profitability of the enterprise; taxing authorities will be concerned with the concept of income; labour unions and employees will focus on the profitability of the enterprise. Ground Rules for Preparing Financial Statements Responsibility for Financial Statements Financial statements are the representations of management. This may strike the reader as a rather obvious statement. It is important to remember, however, the role of judgment in accounting. Notwithstanding the promulgation of accounting standards in the developed countries, considerable flexibility remains in the selection of accounting practices and methods and in their presentation. Arguably, there is more flexibility in the mining industry as few countries have developed standards to deal with its unique aspects. Accordingly, financial statements are as much a product of management's perspective and philosophy as they are a compliance document.

Jan 1, 1985

INTRODUCTION Trade financing is a particularly important component of short-term financing for a minerals company since errors, extra costs, or payment delays/defaults can easily wipe out the profit margin on a particular shipment or can cause problems when arranging purchases of e.g. reagents. It is required to make any minerals operation function and does not have to be cross-border to require proper management. Sources of working capital are as follows: 1. Extended credit terms from suppliers 2. Inventory loans from banks, finance companies 3. Accounts receivable financing or factoring 4. Credit lines or overdraft facilities from banks. TRADE CREDITS These are provided under the familiar terms "net 10 days" or payment due by the "10th day of the following month." Thirty days for payment is usual but longer periods can be negotiated with regular suppliers. Shipment may be made on open account with specified periods for settlement. In the mining industry, a custom smelter gains trade credit by paying for concentrates three months after the month of shipment. INVENTORY LOANS Various forms of inventory finance are provided via "floor-plan" or warehouse financing. A set percentage, usually 60%-80%, of a good-quality, readily saleable inventory item (e.g. bullion, concentrates, ingots) will be provided by a bank or finance company which will usually have security over these products and has a right to inspect the goods from time to time. Legal security will he achieved by warehouse receipts, floating liens, chattel mortgages, trust receipts, or through collateral management service companies. The latter certify control over stock or distribution outlets and often carry insurance against fraud. Costs range around 1.5% - 2.0% p.a. or more plus some fees to cover out-of-pockets or other costs. ACCOUNTS RECEIVABLES Accounts receivable financing is based on the company's generation of satisfactory receivables which are continuously assigned to a bank or finance company ("factoring"). Because of the risks in being able to collect receivables, such as payments to a smelter for its blister copper shipments to a refinery, this form of financing costs as much as 3% - 5% of the debt amount purchased plus an additional charge for processing paperwork. Receivables can be purchased with or without recourse and on a notification or non-notification basis to the client's customer to, respectively, pay the invoice directly to the bank or not. LETTERS OF CREDIT Letters of Credit ("L/C's") are a common feature of international trade finance whereby a bank, at the request of the buyer, issues a written undertaking to an exporter to pay a specified sum of money within a set time on presentation of previously specified documents. This undertaking means that the exporter is no longer relying on the credit standing and integrity of the foreign importer. A dispute about shipment does not otherwise affect the obligation to pay upon presentation of a "clean" set of documents. These documents include the hill of lading and other documentation, often on standard "form" bases. There are a number of conventions and techniques in L/C's such as irrevocable/revocable L/C's, time L/C's, confirmation/advising L/C's and transferable L/C's. These are tools to adjust for the varying risks that the importer will not pay. Other routes where one is comfortable with an importer include documentary sight hills (D/P hill), documentary term bills (D/A bill), and, of course, open account.

Jan 1, 1985

By Anthony Tuke

Members of the Society of Mining Engineers may well regard it as rather unusual that a paper on this subject is being presented by someone whose first taste of mining came at the age of 60 or so - someone who last heard of cathodes and anodes in 1938. On the other hand, the title does refer to the financing of a mine and at least I can claim to have spent all my business life since the war until 1981 in the world of banking, though this inevitably means that I have been used to looking at these and other problems through what you might regard as the wrong end of the telescope. The lending of money, and more particularly the provision of finance for commerce and industry, is the central job of a banker and I have been involved in this in various ways over many years, but regrettably only very marginally in the world of mining. As you will see from what follows, the rather specialised form of finance which RTZ required was, to my regret, not provided by the British banking community since the great majority of the finance came from American banks and, to a lesser extent, from German banks. I am most indebted to Mr. Roy Wright for a great deal of the nuts and bolts in this paper. He was one of the three central figures in the growth and expansion of RTZ during the 1950's and 1960's and was right at the centre of the negotiations with bankers, with governments and with many others. The going, as you will see, was far from easy. The essential basis for the financing of each of the RTZ group's mining projects was a firm long-term sales contract for sufficient of the output of the particular mine to produce the cash flow necessary to service the loans. Wherever possible, loans were raised in the same currency as the sales contracts were made. Each sales contract was designed to give the customer the product he wanted with a long-term assurance of supply and at the same time to give the bankers the protection they required. Thus the marketing concept and the financing concept for a particular mine formed one overall plan, and talks with the customers and the bankers were conducted in parallel until a satisfactory marketing/financial package was agreed in principle. Preliminary talks were begun soon after the discovery of a potentially viable orebody. As confidence about a discovery increased, customers were persuaded to enter into contingent sales contracts before the very detailed and costly business of the economic and technical feasibility study of the mine was launched; such a study might cost 10% or more of the estimated total capital cost. At the same time provisional understandings were reached with the bankers. The contingent sales contracts usually gave a period of grace of eighteen months to two years, during which time the decision whether or not to continue with the mine had to be made. This decision rested mainly on the result of the feasibility study and also on coming to a firm agreement with the bankers. If all went well and the mine went ahead, then the contingent sales contracts became firm, but they fell away if the decision was negative. The Company was fortunate that during the whole period when its major mines were being developed, world trade was increasing rapidly and Japan was becoming a dominant industrial power. The Japanese supported many of the mines, including Hamersley Iron Ore, Lornex Copper, Bougainville Copper to name a few, with the basic long-term sales contracts that enabled their development. The Germans supported Palabora and to a lesser extent Bougainville. The mines were financed as individual projects generally with a loan/equity ratio of about 65/35, without legal recourse to RTZ for the loans. RTZ was, however, responsible for providing any capital overruns required to bring the mines into commercial operations. Nevertheless, the RTZ management regarded itself as morally responsible to the lenders because, Palabora aside, the sales contracts had either a fixed selling price (like Hamersley), an indexed price (like the Elliot Lake Uranium Mines and Mary Kathleen), or a floor price (as in Lornex, Bougainville and Rossing). Thus the Company believed that any financial failure would have been due to poor management or technical

Jan 1, 1985

By Kyle Wightman

INTRODUCTION CRA Limited is the largest mining group in Australia by value of sales and the second largest company in Australia in terms of share market capitalisation. In the past 25 years, CRA, its predecessors and affiliates have been involved in a number of mining and further processing developments in Australia and elsewhere. Many of these have been financed using project financing techniques. These include Comalco's development of the Weipa bauxite deposits in Northern Queensland in the late 1950's, the Hamersley iron ore developments in the Pilbara region of Western Australia in the mid 1960's, the Queensland Alumina Limited alumina refinery in Gladstone, Queensland, at about the same time, and the Bougainville copper project in 1969/70. In the past three years CRA has again utilised project financing techniques to fund its Tarong steaming coal project in Queensland, the Blair Athol steaming coal project also in that State and CRA's interest in the Argyle diamond project in the Kimberley region of Western Austrlia. PROJECT FINANCE DEFINED Nevitt Definition Nevitt's is the most frequently quoted definition - "A financing of a particular economic unit in which a lender is satisfied to look initially to the cash flows and earnings of the economic unit as the source of funds from which a loan will be repaid and to the assets of the economic unit as collateral for the loan." Risk and Balance Sheet Treatment It is important to focus in more detail on two aspects of project financing, risk and balance sheet treatment. The assessment of the various elements of risk in a project and the sharing of that risk between sponsors and lenders is the most critical feature. At one end of the spectrum is full absorption of risk by the sponsor(s). This can be described as "on risk" or "on credit" or "full recourse" to the sponsor(s) and is effectively a corporate financing. At the other end of the spectrum the lenders absorb the whole risk in a non-recourse financing which is "off risk" or "off credit" for the sponsor. The other aspect is the sponsor's balance sheet treatment. If the balance sheet of the economic unit undertaking the project and the financing need not be consolidated into the balance sheet of the sponsor (because ownership does not exceed 50%) then the financing may be described as off-¬balance sheet. If consolidation is required then the financing is described as on-balance sheet. Most project financings involve some recourse to the sponsor, i.e. they are limited recourse. Very few are non-recourse or off credit to the sponsor. Limited recourse financings may be on-balance sheet although many may also be off-balance sheet insofar as consolidation is concerned. However, sponsor support may very well be a contingent liability to the sponsor and require disclosure by way of note to the balance sheet should consolidation not be required. CORPORATE FINANCE CONTRASTED A financing which is on credit or full recourse to the sponsor, whether it is directly borrowed or guaranteed by that sponsor, is a corporate financing. Lenders will tend to base their credit assessment on a historical assessment of the sponsor's activities and its financial results rather than an assessment of the project or a detailed assessment of the future activities and prospects of the sponsor. PROJECT FINANCE - A BORROWER'S PERCEPTION Although CRA could choose to arrange all finance on a corporate basis (except perhaps for the very largest projects or acquisitions), project financing techniques provide a number of specific advantages which CRA has noted and which should be carefully considered by a project sponsor. Advantages

Jan 1, 1985

By Robert T. DeGavre

INTRODUCTION The $645 million financing for Inco Ltd's Soroako nickel project in Indonesia not only represents a significant human achievement but also there are certain important lessons that can be derived from Inco's experience in financing the project. The paper will not present a technical assessment of the project since Inco Ltd. submitted a series of papers on this subject at the international Laterite Symposium as part of the 108th Annual Meeting of the AIME in February 1979. BRIEF HISTORY OF THE SOROAKO PROJECT Table 1 summarizes the milestones achieved in the Soroako project and its financing. Exploration Phase A contract of Work was signed on July 27, 1968 by the Republic of Indonesia and F.T. International Nickel Indonesia (P.T. Inco) covering an extensive area of over 25,000 square miles on the two southeastern arms of the island of Sulawesi. The Contract provides that P.T. Inco has the sole responsibility for financing the project and determining the terms on which the financing should be obtained, that P.T. Inco has the right to receive and hold outside of Indonesia foreign exchange revenues and to freely dispose of such revenues, and that Indonesians have the right to purchase up to 20% of the equity of P.T. Inco over a period following start of production. P.T. Inco began field investigations in the Contract Area in August 1968. Preliminary reconnaissance sampling with portable drills broadly outlined areas of favorable laterite terrain which were then systematically sampled on surveyed grids. By early 1971 sufficient exploration work had been completed to indicate that the laterite deposits near Soroako could sustain a major nickel-producing plant (figure 1). Pilot plant studies in 1970 and 1971 at Inco's research station in Port Colborne, Ontario, using two bulk samples of Soroako ore material, also confirmed that the ore could be upgraded and treated for the recovery of its metal values. Feasibility Phase Encouraged by the results of its exploration program and pilot-plant work, Inco Ltd. commissioned Toyo Engineering Company of Japan in August 1971 to prepare a capital cost estimate for a relatively small nickel project called "Stage I". Stage I was to be a single-line pyrometallurqical process plant with an annual capacity of approximately 15,000 metric tons of nickel contained in 75% nickel sulphide matte (see Figure 2). Electric power was to be supplied by a thermal power station. It is important to recognize that Inco's strategy was to develop the Soroako ore deposits in several stages: first, construct a small project to gain experience and to reduce the initial capital outlay and then later expand in one or more steps to a much larger project to achieve maximum economies. The strategy reflected both Inco's financial position in 1971 as its sales and earning dropped sharply and the difficulties previously experienced by Inco in trying to launch in the late 1960's very large "greenfield" nickel projects in New Caledonia and Guatemala. Toyo's Project Development Study was completed. in January 1972. Based upon Toyo's cost estimate for physical facilities, Inco estimated the total capital cost of Stage I to be $115 million. For the next several months, Inco ran numerous in-house financial feasibility studies, using as inputs Toyo's cost estimate and the results of its exploration and pilot plant programs. In September 1972, Inco completed a project feasibility study which was based upon a capital cost estimate of $135 million. The feasibility study was immediately made available to potential partners and lenders. Partner Negotiations The Japanese nickel market had from the outset been central to Inco's planning for the Soroako project. That market had been growing dramatically at rates in excess of 20% per annum during the 1950's and 1960's. Japan had established, for rational security and other reasons, a domestic

Jan 1, 1985

By M. A. Schimmelpfennig, A. D. S. Gillies

Loss of visibility due to the occurrence of atmospheric fogging in underground mine airways can lead to longer travel times and loss of production efficiency, an increase in the frequency of vehicular and foot traffic accidents and difficulty in checking rock surfaces for instability and loose material. Where hot and humid surface air meets colder underground air, conditions for fog formation may be present. Further, suspended particulate matter from diesel exhausts or stoping operations together with slow movement of air along passageways may contribute to formation. This study describes an investigation being undertaken with the cooperation of Kennecott's Ozark Lead Co. to identify causes of the problem.

Jan 1, 1984

By Thomas J. Menner

Jan 1, 1983

By Reaves. M. J.

The title of my talk, "What Happened to the Uranium Boom?" is old news. Certainly it is for this group. All of us that make our living in uranium know that the boom of the last half of the 1970's is over. U.S. production has been exceeding consumption by more than two to one. Mines and mills are closing and yellowcake prices have been dropping for over 20 months. The gloomy outlook for the industry in the near term has been well documented by soothsayers of various descriptions, your daily newspapers, and in the Nuexco Monthly Reports. I'd like to attempt to describe the next upturn in the market (speculate, really) based upon the clues we're seeing now. In order to do that, I'd first like to go over briefly, some of the market factors that contributed to the recent price drop and resultant production cutbacks, and then hypothesize on the way these factors are changing and will change. Market prices are greatly affected (maybe even entirely determined) by buyer perceptions. This is particularly true with uranium, because of the long lead times associated with nuclear plant construction and also with conventional mine/mill development. Before the price rise (say, 1975) utility uranium buyers believed that: 1) U.S. producers would have difficulty expanding to meet U.S. demand. 2) Australian and Canadian production was essential to avoid shortages in the early 1980's. 3) Uranlum prices would continue to rise as demand exceeded supply. 4) Enrichment capacity would become inadequate. It was thought necessary, therefore, to build enriched inventory in the early 1980's for use in the late 1980's. Artificially accelerated expansion of the uranium producer industry was necessary to accommodate anticipated enrichment demand. Current perceptions are largely the opposite. These are the beliefs that were held most of this year and late last year as prices dropped. 1) U.S. production is far in excess of domestic need. Contraction of the U.S. production lndustry is necessary. 2) Canadian and Australian supply is optional and not essential. Producers in those countries are expanding mainly by displacing higher cost production and not because they fill a void, 3) Prices may be essentially stable for some time. 4) Enriched uranium is in excess supply. That is 1981. 1982 is shaping up to look like this: 1) Prices will have bottomed out. (That is not Nuexco's opinion necessarily, by the way, but it is my opinion.) 2) There will still be substantial utility inventories, but fewer spot sales. 3) Canadian and perhaps Australian sellers will have made substantial sales in the U.S. and will be aggressively seeking more. 4) U.S. production will have been dramatically curtailed. U.S. utilities that wish to con- tract long term will have difficulty in finding domestic sellers. Concern will develop about the availability of U.S. production capability. Virtually all long term con- tracts signed will be with non-U.S. sellers. 5) An awareness will begin to develop among U.S. buyers that we are approaching a period of dependence upon foreign uranium (which will be true). The history of the uranium market has been one of dramatic changes and overreaction to those changes. The rapid price rise of a few years ago generated excess U.S. production capacity and the rapid price drop of the last two years will almost certainly result in too little capacity. It will soon be difficult for U.S. buyers to buy domestic material except on the spot market. The question is, "will they care?" The lack of demand, of course, is the underlying reason for the current poor health of the uranium industry. In 1972, 1973 and 1974 collectively, there were 105 nuclear reactors ordered in the U.S. That ordering rate was expected to continue and accelerate throughout this century. In 1975, 1976, 1977, 1978, 1979, and 1980 altogether, there were 56 more reactors cancelled than ordered. The net growth of our only customer since 1974 has been a negative 56. TO put this in perspective, if these 56 reactors were operating now it would more than double present U.S. uranium consumption. Underlying lack of demand is something that is simply not going to change in this decade. Time is going to be required. The NRC indicates that the maximum feasible number of new reactors that can be licensed each year is six. That would increase uranium consumption by only 10% per year. New reactors, if ordered tomorrow, would not generate new uranium demand until after 1990. Even so, United States' consumption of uranium will rise from the 1980 level of 18 million pounds per year, to

Jan 1, 1982

By Richard E. Ellwanger

Methods of utilizing flocculents as settling and filter aids for mineral processing slurries are reviewed. Broad chemical classifications and techniques for proper dilution, multiple addition, and combination treatments are discussed. A variety of custom built and commercially available systems for makeup and delivery of flocculents to the application points are in use throughout the mining industry. Those concepts which, in the author's opinion, are particularly important to the successful makeup and we of flocculants are presented in relationship to the available makeup and feed systems. Actual industrial applications are included in the presentation.

Jan 1, 1982

By J. D. Anthony

The Australian continent possesses significant reserves of a wide range of minerals, including bauxite, coal, copper, diamonds, gold, iron ore, lead, manganese, mineral sands, nickel, phosphate, silver, tin, uranium, and zinc. Australia's identified economic resources of many minerals are very large as indicated in Table 1. A sophisticated and highly experienced mineral industry is now an established feature of the Australian economy and Australia is the world's largest exporter of iron ore, alumina, mineral sands and refined lead and amongst the leading suppliers of many other commodities such as coal, lead and zinc ores/concentrates, nickel, refined zinc, tungsten concentrates and bauxite. The industry exports 70% of its production. This is reflected in the value of Australian mineral exports which have grown from about $200m in 1960/61, comprising 10% of total export receipts, to about $1265m or 29% of export income in 1970/71 to around $7061 representing 37% of Australia's total export income in 1980/81. Details of the more significant minerals are as follows: Japan (42.1%) USA (11.3%) ASEAN (6.3%) UK (5.9%) F.R. Germany (3.8%) Republic of Korea (3.4%) New Zealand (2.6%) Also see Table 2. AUSTRALIA'S MINERAL RESOURCES POLICIES Federal and State Governments' Responsibilities Australia has a federal system of government comprising six States, a self-governing Territory and a Federal Government. Under the Australian federal system the Constitution sets down the powers of the Federal Government. All powers not assigned to the Federal Government in the Australian Constitution reside automatically with the States. Certain of these broad powers result in the Federal Government having a significant influence on resources development. For example, in being responsible for economic management, the Federal Government's fiscal and monetary policies have an important effect on industry as well as on State finances. In particular, the taxation regime employed by the Federal Government is of direct importance to decision-makers in the resources industry. The Federal Government is responsible also under the Constitution for external trade matters; and international trade and commodity matters are increasingly important in Australia's international relationships. Foreign investment is another area where the Federal Government has a role to ensure that national interests are protected. This foreign investment power flows from the Federal Government's control of foreign exchange movements into and out of Australia. However, before enlarging on these and others of the Federal Government's powers and policies, it should be emphasized that the State governments, by virtue of their wide powers to regulate matters within their own boundaries, are more directly involved in the day-to-day administration and regulation of mining operations. For instance, the powers of the State governments include the responsibility-for the granting of exploration rights and mining leases, the approval of mining operations and the levying of royalties and other like charges. Administrative arrangements covering the granting of minerals and petroleum exploration and development titles vary from State to State. Before development rights are granted, State governments consider environment protection and rehabilitation aspects of development proposals. The provision of infrastructure within State borders is a matter primarily of State government responsibility. It is usual practice in Australia for State governments to construct and operate infrastructure services such. as railways, ports and electricity generation and transmission. The States may also provide certain public services such as electricity. and water, port and loading facilities, communications, health and education services which form part of the infrastructure of mining operations. In remote areas the mining companies themselves usually are expected to provide much of this infrastructure. However, the Federal Government is primarily responsible in some fields, such as telecommunications and parts of the railways network. State governments carry out preliminary exploration and geological mapping and some are directly involved in the mining of coal for power generation. The Federal Government's responsibilities in addition to economic management, taxation, international relations, foreign capital and investment, include regulation of exports, environmental matters and matters affecting the Aboriginals of the Northern Territory. FEDERAL GOVERNMENT POLICIES The continued sound development of the minerals and energy resources sector is regarded by the Federal Government as being of very great importance. However, the Government does not seek to participate directly in resource developments. It sees its role rather as that of establishing a sound economic and policy climate in which private companies can identify opportunities, seek out customers and marshall the necessary capital for the development of resource projects.

Jan 1, 1982

By Allan D. Taylor

INTRODUCTION From the designer's view, the installation starts with the first definition of the orebody, and progresses through a long and complex development. The design is affected not only by the characteristics of the ore, but by all of the personalities and events of the project during its development. The following discussion attempts to touch on the most important aspects which define the context in which the designer must work in apply the do's and don'ts. That context is the basis of the viewpoint. WHAT CAN GO WRONG The Project Is Going Over Budget This is a common and serious concern to the plant designer. The Project Falls Behind Schedule Another common and disturbing condition with which the plant designer must cope. Some Equipment Fails to Perform This can be due to either faulty equipment or operating deficiencies. It can be the result of a wide variety of causes, but the designer will be an interested party in the search for the cause and the cure. The Plant Isn't Flexible Enough Sometimes a plant will handle some or even most of the ore satisfactorily but is unable to treat another type properly. This can be a significant problem. An example might be a case where low capacity of a cyclone feed pump makes it impossible to accompany an increase in grinding mill throughput with a corresponding increase in dilution water. This could lead to an increase in cyclone feed density, and a loss in product grade or a limit on the plant capacity. Spillage And Cleanup Are Excessive This is one of the most common and annoying defects in metallurgical plants, and one for which the designer can rarely delegate blame. Maintenance Is Excessive Another common complaint in new plants, and also one for which the dedesigner must accept most of the responsibility.

Jan 1, 1982