Financing Mining Projects
in South America
Daryl J. Hodges
Senior Managing Director, Head of Investment Banking
MineSouthAmerica: Focus on Peru Seminar
27 May 2010
This presentation was prepared exclusively for the benefit and internal use of the Jennings Capital client whom it is directly addressed and
delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility
of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This
presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral
briefing provided by Jennings Capital. Neither this presentation nor part of its contents may be disclosed or used by any other purpose without
the prior written consent of Jennings Capital.
The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views on
this date, all of which are accordingly subject to change. Jennings Capital’s opinions and estimates constitute Jennings Capital’s judgment and
should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed,
without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by
or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the
asset, stock, or business of the Company or any other entity. Jennings Capital makes no representations as to the actual value which may be
received in connection with neither a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly
contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions
involving an actual or potential change of control, which may have significant valuation and other effects.
Jennings Capital’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering
to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or compensation. Jennings
Capital also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that
such participation is intended to benefit investors.
Jennings Capital Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of tax matters included herein (including any
attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by
anyone not affiliated with Jennings Capital of any of the matters addressed herein or for the purpose of avoiding tax related penalties.
This presentation does not constitute a commitment by Jennings Capital to underwrite, subscribe for or place any securities or to extend, arrange
or provide any other services.
2
Financing Mining Projects in Peru/ South America
Presentation Highlights

Investing Rationale:

Jurisdiction and mining legislation
Why Peru

“Land of the Elephants”

Excellent exploration potential

Human Resources



Investing in Peruvian Mining: Rationale
Financings Projects/ Companies in Peru

Mechanisms

Recent capital markets trends

Future
Accessing International Capital Markets
Jennings Capital Inc.

Listing on the TSX/ TSX V: IPO, RTO

Straight Equity Financings

Project Financings: Debt, Equity, Exotic

Capital providers: individual & institutional investors,
strategic partners, supranationals
Jennings Capital Inc.
3

Independence

Full service investment dealer

Expertise in mining

Partnership model
Peru is a Focus for TSX and TSX-V Mining Companies
TSX: 7 cos, 21 props
TSXV: 9 cos, 17 props
TSX: 5 cos, 11 props
TSXV: 6 cos, 24 props
TSX: 10 cos, 22 props
TSXV: 10 cos, 26 props
TSX: 7 cos, 23 props
TSXV: 17 cos, 42 props
TSX: 21 cos, 80 props
TSXV: 27 cos, 76 props
Focused on Peru:
TSX: 30 Co’s, 114 Different Properties
TSX V: 53 Co’s, 143 Different Properties
TSX: 9 cos, 9 props
TSXV: 6 cos, 21 props
TSXV: 3 cos, 4 props
TSXV: 2 cos, 19 props
TSX: 22 cos, 56 props
TSXV: 35 cos, 84 props
TSX: 23 cos, 81 props
TSXV: 34 cos, 143 props
Source: the TMX Group
4
Why Invest in Peru?
GDP growth 9.8 %
(2008)
Economy committed
to commercial
integration
Process
Favorable climate
for investment
Mining leadership
Source: Ministerio de Energia y Minas; www.minem.gob.pe






Sustainable growth since 2002
2009-2011 annual forecast above 6%
Exports tripled in 5 years
Investment is increasing at an average of 20% annually
Stable exchange rate (free)
Favorable mining legislation


32 free-trade agreements
Preferential access to USA (FTA), EU, MERCOSUR, Andean
Community, China (FTA), Korea (FTA),Canada, Chile (FTA)




Country with investment grade rating
Attractive framework for Foreign Direct Investment, free-flow of
capital, based on equality of local and foreign firms
Peruvian government publically encourages private investment
Income tax 30%, Royalties below 2% (tied to sales levels)





Leading producer of gold, zinc, copper, tin and lead
Enforced environmental regulations since 1992
All of the world’s multinational mining majors operate in Peru
2008 mining exports producing $18.5 billon (55% total exports)
Announced investment over $23 billon for the upcoming years
5
Gold: One of Emerging Industries in Peru
GOLD PERU PRODUCTION 2008 (Ounces)
1
Newmont
Yanacocha
Cajamarca
1,982,254.59
2
Barrick Misquichilca
Alto Chicama
La Libertad
1,728,297.56
3
Madre de Dios
M.D.D.
Madre De Dios
589,367.66
4
Buenaventura S.A.A.
Orc. + Anta.
Aqp. & Hcv.
397,905.87
5
Comarsa
Comarsa
La Libertad
184,692.08
6
Minero Horizonte
Parcoy
La Libertad
182,093.52
7
Aruntani S.A.C.
Tucari
Moquegua
162,303.35
8
Minera Aurifera Retamas S.A.
Retamas
La Libertad
152,496.67
9
Minera Poderosa
La Poderosa
La Libertad
111,263.02
10
Minera Ares S.A.C
Ares
Arequipa
108,689.04
11
Arasi SAC
Arasi
Puno
96,911.86
12
Minera San Simon
La Virgen
La Libertad
81,003.71
13
Miner IRL SA
Corihuarmi
Junin
55,314.38
14
Centauro SAC
Quicay
Pasco
51,965.67
15
CEDEMIN SAC
Chaquelle
Arequipa
42,966.28
16
XSTRATA Tintaya S.A.
Tintaya
Cusco
40,204.25
17
Gold Fields
Huaolgayoc
Cajamarca
38,372.38
18
Other Gold Producers
Gold Corridor
Source: Ministerio de Energia y Minas; www.minem.gob.pe
338,647.50
Total Gold Corridor
4,460,473.53
Total Peru (without by product)
5,416,734.23
Total Peru
6,344,749.40
Total World
83,105,454.72
6
Peru: Wealth of Mines and Projects
~5.0 MM Oz in Annual Gold Production from the “Gold Corridor” only
Other Peru Based
TSX Listed Co’s:
 Century Mining
 Dynacor Gold
 Fortuna Silver
 Goldhawk Res.
 Gittenes Explor.
 Minera IRL
10 Km.
 Pan Amer Silver
 Rio Alto
 Sulliden
 Teck
 Zincore Metals
Dots Show Producing Areas
Source: Ministerio de Energia y Minas; www.minem.gob.pe
7
Largest Gold Mines on the Peruvian “Gold Corridor”
HORIZONTE
YANACOCHA
• 2008: 1,810,000oz
• 2008: ~180,000oz
• 2008 Cash Costs: $443/oz
• 2008 Cash Costs: ~$250/oz
• 13.2m oz 2P; 20.3m oz Res.
• 540k oz Resources
• Operator: Newmont
• Operator: Private Family
CERRO CORONA
MARSA
• 2009E: 375,000oz
• 2009E Cash Costs: $270/oz
• 2008: ~149,000oz
• 3.0m oz 2P; 4.7m oz Res.
• 2008 Cash Costs: ~$280/oz
• Operator: Gold Fields
• Operator: Private Family
LAGUNAS NORTE
• 2008 Prod.: 1,170,000oz
• 2008 Cash Costs: $169/oz
• 9.0m oz 2P; 10.6m oz Res.
PERU
• Operator: Barrick
PODEROSA
PIERINA
• 2008 Prod.: 110,000oz
• 2008 Prod.: 400,000oz
• 2008 Cash Costs: $443/oz
• 2008 Cash Costs: $284/oz
• 0.3m oz 2P; 1.7m oz Res
• 683k oz 2P; 843k oz Res.
• Operator: Atacocha
• Operator: Barrick
8
Reasons for Listing on the TSX
Leading Natural Resources with Best in the World Mining Expertise

Access to capital enables production growth (organic and through acquisitions):


TSX has a proven track record of financing, listing and trading mining companies with 57% of the world’s
public mining companies on TSX
Canadian Equity Markets raised 7 times AIM, 2.5 times ASX and 2.5 times LSE for mining companies in 2009

Liquidity event and re-valuation for the main, private shareholders/ owners

Access to larger, more international institutional investors and greater analyst coverage:



Better liquidity, higher market capitalization and higher trading multiples, implying higher valuations
Globally visible specialized indices



S&P/TSX Global Gold Index; S&P/TSX Global Mining Index
Strengthening of Management and Board of Directors:




Over 30 seasoned independent analysts
Share ownership and options give the Company the currency to attract talent
Exchange mandate to mentor management of newly public companies
Pool of talent for outside directors
Ability to finance international projects:

TSX/ TSXV mining companies have 10,000 projects around the world – 50% are outside of Canada

Peru based only - on the TSX/ Main Board - 30 Companies with 114 properties, while the junior TSXV
maintains listing for 53 Companies holding 143 Peruvian based properties
Corporate Governance:

Canada offers a balanced corporate governance approach and sophisticated capital markets compared with
other resource exchanges
9
Effective Methods to Go Public on TSX: IPO vs. RTO
Explorer vs. Developer vs. Producer: Venture Exchange vs. Main Board
Early Stage Companies:
Most effective: cost and speed

Expertise in home capital markets

Existing shareholder base
Used mainly by small cap, early stage
non-producing companies

Capital Pool
Company
(CPC)
(Used mainly by small cap,
early stage non-producing
companies)
Special
Purpose
Acquisition
Corp (SPAC)
(Used mainly by small cap,
early stage non-producing
companies)
Reverse
Takeover/Reverse
Merger (RTO)
Initial Public
Offering
(IPO)
Qualifying
Transaction /
Acquisition
Dual Listing:
TSX, BVL
10
Becoming Public: IPO Route
IPO Process, Documents Required and Approximate Timing
Week 1
Process
Private
company
retains TSX
member to
manage the
process
Documentation
Engagement
letter, term
sheet signed
Marketing
Week 2
Week 2 to
Week 6
Due
diligence
work
Week 7
Week 8 to
Week 12
Week 13-16 Week 17 Week 18
Preliminary
due diligence
session prior
to filing
preliminary
prospectus
Engineering
and technical
reports
prepared
and finalized
Prospectus File preliminary
drafting;
prospectus
financials
and greensheet
prepared
and finalized
Presentation
preparation
Market
planning
Security
Commission*;
TSX comments;
Agency
Agreement
drafted
Circulate final Shares listed;
prospectus;
commence
close
trading
transaction
File amended
prospectus;
Submission of
sponsorship
letter
Receipt of
final
prospectus;
Signing of
Agency
Agreement
Types of Listing:
 Preliminary Prospectus
 Conditional listing - Permits listing of shares on
 Agency Offering/Underwriting
Agreement and Sponsorship
Agreement
* Assumes two rounds of comments
TSX pending completion of the IPO, then the
company becomes fully listed after the IPO is
completed
 Standard form listing - For a previously listed
company
 Wrap-around listing - For a previously listed
company
11
Week 20
Final due
diligence
session
Principal Documents Required:
 Audited, and Unaudited Interim,
Financial Statements
Week 19
Commence
Finalize the
marketing with book
preliminary
prospectus
and greensheet
Commence
building the list
of potential
purchasers
("the book")
Becoming Public via RTO: Deal Structure
TSX Listing Criteria
Reverse Merger/ Qualifying Transaction Mechanics
Financial:
 Adequate Funds to Commercialize
 C$4 Million Net Tangible Assets
 18 Month Projection of Sources
1.
“Canadian
Domiciled”
Shareholders
RTO
Distribution:
 Public Float of C$4million
 300 Public Shareholders
Technical:
CPC/ ShellCo.
Peruvian PrivateCo.
2.
3.
$$
New Investors
12
 3 Years of Proven and Probable
Reserves
TSX Listed Peruvian “PublicCo.”
Financing Mines in Latin America: Markets and Sources
Current Market Conditions

Worldwide equities – oversold on a short term basis:

Sustained appetite for precious metals producers
European debt concerns, emerging markets raw
materials demand fatigue, weak recovery in the US

In contrast with Spring/ Summer 2009, bank debt
providers actively pursuing lending mandates
Bond yield touched recent lows – flight to “safety” of
treasuries:

New capital providers/ sources available for South
America


Capital Sources & Developments (cont’d)


US 5-year T-note sitting below 2%
VPP (Volumetric Production Payments or metal
stream deals); i.e. Sandstorm Resources Ltd.

Gold – rallied over the last 15 days

Luna Gold – Aurizona Project/ Brazil – US$ 17.8m

Further equity markets correction expected

SilverCrest Mines – Santa Elena, Mexico – US$ 12m

Capital Sources




Private/ owner’s capital – very early stages, preresource, private companies
TSX/ TSX V; dual-listings (i.e. BVL)

Bank debt/ non-bank debt – yield, covenants,
hedging

Strategic partners/ JVs

Non-traditional/ exotic sources of financings


13
Carpathian Gold – RDM Gold Project/Brazil – US$ 30m
Supranationals – International Finance Corp. (IFC)

Equity and debt capital markets for publicly listed
enterprises:

Forward gold sale agreements: Macquarie Bank
Greystar Resources Ltd. – C$12m private placement
New developments:

Traditionally, project debt financing would close
after equity tranche already raised/ finalized

Currently, more equity investors require debt
financing details/ finalization before committing
capital
Board representation sought by equity investors
Jennings Capital Inc.: Key Principles
Independence
Full Service
Experience
Strategic advice and sourcing of
capital unconstrained by
ownership – no credit related or
principal trading conflicts
Partnership Model
Founded, owned and operated by
senior investment banking
professionals
Full Service
Partnership
Independence
Focused on corporate finance,
mergers and acquisitions,
institutional sales and trading and
equity research focused on mining,
oil & gas and diversified industries
Experience
Independent Financial Advice and Capital Markets Resources/
Expertise Delivered by Seasoned Senior Professionals
14
Services delivered by senior
investment banking professionals
who are leaders in the field and
have extensively worked in their
industries before banking
Jennings Capital Inc.: Recent Mining Financings
Mining Transactions
May 2010
June 2007
Proven Success

$25,000,000
Agent*
May 2010
In the last three years, Jennings Capital Inc. has advised in over 40
separate transactions and, in aggregate, managed the placement and
after-market trading of approximately $6.0 billion in equity capital for
over 70 of Canada’s most successful growth businesses

We have led or co-managed offerings ranging in size of up to $392 million

We have most recently financed gold and base metals projects from
different jurisdictions such South America (Peru, Colombia), Canada, US,
West Africa and Australia
$104,250,000
Lead Underwriter*
September 2009
$385,000,000
Agent
April 2009
$40,519,500
September 2009
$80,500,000
Lead Underwriter
September 2009
April 2008
March 2008
Agent
January 2009
$50,000,000
$80,000,000
$40,000,000
Agent
Agent
Lead Agent
$20,000,000
$63,250,000
Underwriter
Lead Agent
*Closing Pending
15
Jennings Capital Inc.: Investment Banking Key People
Daryl Hodges –

Co-founder of the Jennings’ Toronto operation and
oversees the investment banking group

Over the last 11 years, carried out mining equity research
and investment banking at Jennings Capital and at HSBC
Securities including financings of $600K to $1.2 billion


David Donato
Head of Investment Banking
Structured, arranged and led past financings totaling in
excess of $2.5 billion

More than 14 years experience in the financial services
industry, including 9 years of investment banking
experience

Former Head of Investment Banking at Loewen,
Ondaatje, McCutcheon and 6 years experience in public
accounting with Arthur Andersen and BDO Dunwoody

B.A. (Honours Chartered Accountancy Program) from the
University of Waterloo, CA from the Institute of
Chartered Accountants of Ontario and CFA charterholder
As a geologist, worked in the mining industry in Canada,
Sweden, Finland, Russia and South-East Asia for over 18
years
Simion Candrea
Ricky Chan

Joined Jennings in early 2005, as an Investment Banking
Associate in our Toronto office

Joined Jennings in January 2008 as an Investment
Banking Associate at our Toronto office

Primarily focused on the mining and special situations
sectors

Primarily focused on the potash/ fertilizer and special
situations sectors

Prior to joining Jennings, five years with RBC Dominion
Securities Inc. and the Dutch Bank ABN AMRO, covering
the Healthcare/Pharmaceutical sector in the European
Emerging Markets

Prior to joining Jennings, six years in the financial
services industry which includes Loewen, Ondaatje,
McCutcheon and Deloitte Financial Institution Group
16
Jennings Capital Inc.: Key People in Mining Research
Peter Campbell
Mark Turner

Professional Mining Engineer with 25 years experience in
the mining business with in-depth mining background

Joined Jennings in February 2008 as an Associate
covering the Mining sector

Formerly an exploration manager with Falconbridge
Limited (now Xstrata) where he worked on various
worldwide exploration projects involving exploration for
Ni, Cu, and Cu-Zn deposits

Prior to joining Jennings, Mark worked for Loewen,
Ondaatje, McCutcheon Ltd. as a mining Research
Associate


Peter is a member of the PEO, CIM, PDAC, SEG and MRAG
Worked for a large Canadian home developer, valuing
land acquisitions and developing infrastructure projects

Peter covers base metals, iron ore, and Canadian gold
producers

Holds a B.A.Sc. in Geological Engineering from the
University of Waterloo and a MBA from the Richard Ivey
School of Business at the University of Western Ontario
Stuart McDougall

Studied geology at the University of Toronto

Joined Jennings in June 2006 with more than 10 years of
mining industry experience, including 4 years as a
reporter for the Northern Mines

A mining research associate with GMP Securities covering
mining companies outside the conventional gold and
base metals sectors

Stuart focuses on gold producers and developers, mainly
in Africa and Latin America
17
Partners in Growth
Daryl Hodges
(416) 304 2174
Simion Candrea
(416) 304 2186
Ricky Chan
(416) 304 3891
Mark Styles
(416) 304 3892
Michelle Hung
(416) 304 3893
18