Team Finland Mining, market study Canada

Module 4.2 Market Studies

Team Finland Mining Growth ProgramCANADA

December 2015

Table of Contents

– Goals and Content of the Assignment

– Overview of Canada’s Mining Sector

– Results and Recommendations

– Market Landscape and Canadian Mining Industry

– Key Players Regulatory Environment

– Challenges

– Expert Interviews

– Key Information Sources

– Sources

16.12.2015 Team Finland Mining Growth program

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Goals and Content of the Assignment

Purpose

to provide relevant market information for Finnish mining industry companies'

decision making regarding international growth, specifically into the Canadian

mining industry

Goals

Improved understanding of market opportunities, challenges, competitive

situation, channels, operating models and other relevant facts of the market for

Team Finland Mining growth program companies.

Methodology

This study is informed by primary and secondary research, including interviews

with high-level mining industry players and industry associations.


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Overview of Canada’s Mining Industry

Canada is:

– host to the largest global junior mining sector;

– home of the global centre for mining finance;

– centre of a leading mining supply sector; and

– the top global destination for mineral exploration investment for 20 of the last

34 years.

– Canada’s mining sector is expected to reach CAD $130B of investment by 2016.

The country’s political stability and flexibility on foreign investment and trade

are important facilitators for doing business.


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Overview of Canada’s Mining Industry

– Canada is the global leader in the production (by volume) of potash and ranks

among the top five global producers for primary aluminum, cobalt, diamonds,

gold, nickel, niobium, platinum group metals, salt, sulphur (elemental), titanium

concentrates, tungsten, and uranium.

– Globally, Canada is recognized for its leadership in safety and sustainability.

Mining companies in Canada were the first in the world to develop an

externally-verified performance system for sustainable mining practices with

the creation of the Mining Association of Canada’s Towards Sustainable Mining

initiative in 2004.


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Results & Recommendations

Recommendations to new suppliers

– New suppliers from Finland are welcome as they have a good reputation but it’s important to be present in the country.

– New suppliers always have a chance but it’s important to show references and be prepared to give guarantees (mechanical, delivery times, etc.) – the more the better, but stand by them (the most challenging are performance guarantees, which sometimes are requested).

Gathering information

– Feasibility studies and projects can be found published online at sedar.ca, which have been compiled based on National Instrument standards and guidelines (NI 43-101).


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ResultsBidding for a Project

– Carefully read the terms and conditions (T&Cs) and scope of delivery in a request for proposal (RFP), particularly from an engineering company. The T&Cs are often times quite lengthy and may include items that should be taken exception for (in order to protect yourself).

– When responding to a RFP, don’t hesitate to provide alternatives (in addition to what’s being requested) if you feel that the alternative would be a better solution for the requested scope.


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ResultsBuilding relationships

– As a technology supplier, develop relationships with mine owners primarily

(and secondarily with engineering companies). Especially during this down

period, it might easier to start dialogues due to the quieter work load.

– The first time you hear about an upcoming project should not be through a

formal RFP. Ideally, you would have had your input for the scope being

requested, which comes through good relationships with the owner.

– Support relationships with potential clients so they know how to “sell you

forward” within their organizations.


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ResultsChannels and entry barriers

Selecting the right channel

– Important to have a strong presence in front of customer to develop and maintain relationship. Which model you choose (direct sales, own company, agents) will depend on business volumes and nature of business (e.g. proprietary technology vs. standard components).

– Some successful Finnish companies have hired local sales and key contacts in Canada but kept the Finnish interaction.

Addressing entry barriers

– As a new technology supplier, it can be difficult if you’re not on the preferred vendor list of engineering companies.

– Costly to cover all the mining operators (mines and central organizations) given the size of the country.


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ResultsOperating models

– Some are critical of the current 3-way relationship of the owner, engineer and OEM, not being truly cooperative. Find ways of navigating the needs of all parties.

– Supplier involvement in design and construction is becoming increasingly important.

– Varying success with EPCM model, even though it has been the most prevalent until now.

– Some mine owners prefer more control and having construction companies involved in design in order to ensure total project attention early on. Some suppliers are better in this role than others.

– Engineering should be aimed at better covering an entire project and scheduling.


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ResultsKey success factors

– Local knowledge is important

– Good technical support and quick customer attention

– Systems to ensure quality control, traceability

– Quality assurance and performance guarantees

– Suppliers who can help finance (e.g. Hudbay and Caterpillar)

– Supplier involvement in initial design

– Importance of ‘cradle to grave’ approach for suppliers

– Don’t just get your purchase order filled; have some “skin in the game” with a long-term perspective

– Avoid the typical “Finnish value proposition” that is steeped in technology and overly product focused. “Nothing lives in a box.” It has to be “engineering on the fly”, i.e. flexible and adaptable


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ResultsBusiness opportunities

– Modular construction that can be assembled off-site, particularly given the fact that mines are often located in remote areas

– Solutions for tailings disposal

– Solutions for water management & water re-use

– Electrification of vehicles

– Automation of mobile equipment

– Sensor technologies, e.g. in process automation

– Energy efficiency technologies

– Effective exploration technologies


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Market LandscapeCanadian mining industry size

– Employs 380,000 workers

– In 2014, the GDP of mining, mining-related support activities, and mineral processing was $66.9 billion, which represented 3.6% of Canada’s total GDP.

– In 2013, Canadian mining and metals companies invested $522 million in R&D and employed 4,700 R&D workers


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17 %

7 %

19 %

14 %

43 %

Employment breakdown in Canadian Mining Industry

Mining & quarrying (except oil and gas)Mining-related support activitiesPrimary metal manufacturingNonmetallic mineral product manufacturingFabricated metal product manufacturing

– The value of Canadian mineral production reached $45 billion in 2014

– In terms of capital expenditures, the mining and mineral processing industries invested $15.3 billion in new capital construction and in machinery and equipment, accounting for 6.1% of the Canadian total (in 2014).

Market LandscapeMining finance

– Toronto is the global hub for mining finance; the Toronto Stock Exchange (TSX) and TSX Venture Exchange were home to 57% of the world’s publicly-listed mining companies and traded more than $200 billion of mining stock in 2013.

– Together, the two exchanges handled 48% of global mining equity transactions in 2013, and accounted for 46% of global mining equity capital that year.

– Canada ranked first in equity financing raised for mining and mineral exploration, with over 60% ($8.9 billion) of the world’s equity financing raised by companies listed on the TSX or TSX-Venture stock exchanges in 2014.


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Market LandscapeCanada’s market potential

– In 2014, Canada produced some 60 minerals and metals at over 200 active mines, worth nearly $45 billion

– World’s largest producer of potash

– Exports of aluminum, copper, gold, iron and steel, iron ore, nickel, silver, uranium, zinc, diamonds, potash and coal ranged from $1.5 billion to $17.7 billion each

– 180 producing mines (metal, non-metal and coal)

– 30 non-ferrous metal smelters, refineries and conversion facilities

– 2,500 active exploration properties, including rare-earth elements


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Market LandscapeInvestments

Canada’s has had some encouraging federal-level investments in mining including:

– The re-start of Quebec's Plan Nord addressing lack of infrastructure

– The extension of British Columbia’s Northwest transmission line

– Ontario's $1 billion Ring of Fire infrastructure commitment

– The Ring of Ice in the Northwest Territories, which is expected to further open

up with an all season road


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Market LandscapeCanada’s integrated smelters & refineries

– New Brunswick: 1 smelter

– Quebec: 10 smelters, 3 refineries, 1 refinery/secondary smelter

– Ontario: 2 secondary smelters, 3 refineries, 2 smelter/refineries, 1 smelter/processor, 1 conversion facility

– Manitoba: 1 smelter/refinery

– Alberta: 1 refinery

– British Columbia: 1 smelter, 1 secondary smelter, 1 smelter/refinery, 1 processing plant


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Canadian Mining IndustryGeographical location of Canada’s mining expertise


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The Northwest Territories is the dominant source of diamonds.

Ontario and Quebec lead in the production of gold

Saskatchewan produces all of Canada’s uranium and has world-class potash reserves.

British Columbia is prominent in metallurgical coal production.

Newfoundland and Labrador and Quebec produce virtually all of Canada’s iron ore.

Several provinces have strong copper and nickel production.

Mining Association of Canada (2015) Importance of Northern Mining to Canada

Canadian Mining Industry By provinces


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Government of Canada 2014

Canadian Mining Industry Proposed projects

The Mining Association of Canada estimates that $160 billion in mining projects were

proposed in Canada, including multi-billion dollar investments in:

– Nunavut gold and iron ore – Agnico-Eagle, Baffinland, ArcelorMittal

– NWT rare earths, diamonds, gold – De Beers, Canadian Zinc, Avalon Rare Metals

– BC coal, gold, copper – Teck, New Gold, Imperial Metals, Taseko, Anglo American

– Alberta mined oil sands – Suncor, Syncrude, Shell

– Saskatchewan diamonds, potash, uranium – Shore Gold, BHP Billiton, Cameco

– Manitoba gold, zinc – HudBay Minerals

– Ontario nickel, chromite, gold, palladium – Cliffs NR, Vale, Noront, IAMGOLD, Glencore

– Quebec diamonds, gold – Stornoway, Agnico-Eagle

– Newfoundland & Labrador nickel processing plant – Vale

– Labrador iron ore – Rio Tinto/IOC


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Canadian Mining Industry Canada’s Mining Ranking

– The Fraser Institute – Canada’s policy think-tank – publishes a yearly survey of

mining and exploration companies.

– The survey rates 122 jurisdictions around the world based on their geologic

appeal and the extent to which government policies (such as taxation and

regulation) encourage exploration and investment.

– The latest survey, from 2014, included responses of 485 mineral exploration

and development company executives and exploration managers from around

the world.

– With regard to Canada, the survey data is divided into provinces.

– The 2014 results show that Saskatchewan is the most attractive jurisdiction for

mining investment in Canada, and the second best worldwide, next to Finland


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Canadian Mining Industry Canada’s Mining Ranking

– Canada as a country did fairly well, as four jurisdictions (besides Saskatchewan)

finished in the top 10 worldwide: Manitoba (4), Quebec (6), Newfoundland and

Labrador (8) and Yukon (9).


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0 20 40 60 80 100

Nova Scotia

Nunavut

British Columbia

Ontario

Alberta

New Brunswick

Northwest Territories

Yukon

Newfoundland & Labrador

Quebec

Manitoba

Saskatchewan The investment

attractiveness

index figure

organized by

province is shown

in the picture.

Market LandscapeCurrent key trends

– Weak metals market demand & price

– Increased involvement with Aboriginal groups

– Difficulty with raising capital, project financing

– Diminishing grades & less high-grade ore bodies

– Operating deeper and more costly mines

– Mines in remote locations

– Need for infrastructure investment from government

– Extensive Provincial permitting process

– Provincial permitting includes: Exploration license, Operating license, Construction licenses, Environmental impact assessment, Hearings / town hall meetings


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Market LandscapeNorthern economic development & Infrastructure

– Mining is central to northern economic development, particularly since the industry is also the largest private sector employer of Aboriginal peoples in Canada

– However, a recent study shows that the costs of mineral exploration and building and operating mines are significantly higher in remote and northern regions of Canada’s provinces and territories. Second, this cost premium is directly linked to the lack of infrastructure in these areas.

– Capital costs were higher for a range of commodities: – 2.5 times higher for base metal mines– Approximately double for gold mines– 15-20% higher for diamond mines in the territories

– Quebec's government will invest $50 billion in “Plan Nord” by 2035, a program for the development of resources in northern Québec. Infrastructure commitments will aid new mineral exploration and mining development.


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Mining Association of Canada et al. (2015)

Market Landscape

Quebec’s “Plan Nord” will

– develop necessary

infrastructure;

– fast track the extraction of

natural resources in the

northern part of the province;

and

– create a “one-stop” agency that

will untangle permitting

requests and other red tape for

mining companies.


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Government of Quebec 2015

Market LandscapeValue chain

– Many Canadian companies’ headquarters are in Canada but all or most operations can be outside of Canada.

– If a technology supplier is interested in accessing other regions, they should reach out to the individual operations, not necessarily the headquarters (although more information can be sought from HQs (E.g. Gold Corp., First Quantum).

– Unlike in the United States, where mining is dominated by a handful of multinational conglomerates, Canada’s unique mining ecosystem is largely comprised of thousands of small-to medium-sized enterprises.

– Junior companies often shoulder the biggest exploration risks through “greenfield” exploration in remote locations. If they discover a viable project, a junior will often sell it to a larger company for development and, potentially, for mining. A minority of juniors will decide to raise capital to develop a site themselves.


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Market LandscapeValue chain

– Junior mining company activity has been drastically reduced compared to the situation 5 years ago due to financing difficulties.

– Current projects aren’t moving ahead as anticipated.

– Operating mines are trying drastically to reduce their operating costs.

– Exploration has diminished but scoping studies and pre-feasibility studies are being carried out by engineering companies, owners and consultants.

– Engineering companies typically act as the integrators bringing together technology/OEM suppliers for their clients.

– Mines are constructed typically with a 3-way relationship of the owner, engineer and OEM and then operated by owner and technology supplier.


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Key Players - MajorsAgnico-Eagle Mines Ltd.

Agnico-Eagle is a producing gold company based in Canada. It produces gold, copper, lead, silver and zinc in Canada, in Finland and in Mexico, develops copper, gold, lead, silver and zinc in Canada, and holds various exploration projects in Canada.

Its main assets in production are Laronde, Laronde (El Coco) Mine, Meadowbank and Laronde Extension in Canada, Pinos Altos in Mexico and Kittila in Finland. Its main assets in development are Lapa, Goldex and Laronde in Canada and its main exploration properties are Bousquet Mine, Joutel, Nighthawk, German Property, Mountjoy Property, Thornloe, Reid, New Deloro, Carr - Wilkie, Whitney Tisdale, Wark, Easter Dome, Meliadine, Ellison, Bousquet and Ellison, Colomac Mine, Caballo Blanco Property and Victory Lake in Canada, and Morelos Sur in Mexico.

Agrium Inc. Founded as Cominco Fertilizers, Limited (short for Consolidated Mining and Smelting Company Limited) in 1931 and changed its name to Agrium, Incorporated in 1995. The company is headquartered in Calgary and is a retail supplier of agricultural products and services in North and South America as well as Australia. The company provides nitrogen-based fertilizers, sulphur, and phosphate-based fertilizers from potash mines in Saskatchewan and in Kapuskasing, Ontario, and in Conda, Idaho. Agrium heads Canadian Mining Journal’s 2014 list of Canada's Top Performers with gross revenues of $16.2 billion.

Alcoa Canada Ltd.

A producer of bauxite, alumina and primary aluminum products. In Canada, in addition to primary aluminum production at the Baie-Comeau, Deschambault and Bécancour (ABI) smelters, Alcoa transforms aluminum for the aerospace (Alcoa Cast Products), automotive (Alcoa Wheel & Transportation Products) and construction (Kawneer) markets. Operations are located mainly in Québec, Ontario and Alberta.

ArcelorMittal Canada

ArcelorMittal Mines Canada is one of Canada's leading suppliers of iron ore to steel markets around the world, generating some 40 per cent of Canada's total production. As both a mining and primary processing company, it operates extensive facilities in the Province of Quebec.


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Key Players - MajorsBarrick Gold Corporation

Based in Toronto, Barrick Gold Corporation is the largest gold mining company in the world. They are an internationally recognized powerhouse in the world of mining and ranks second in Canadian Mining Journal’s 2014 list of Top 40 ranking with gross revenues of $12.9 billion.

CamecoCorporation

Cameco Corporation is one of the world’s larger publicly traded uranium companies. Based in Saskatoon, the company was the world’s third largest uranium producer in 2012, accounting for 14% of world production. “Cameco” (Canadian Mining and Energy Corporation) was formed in 1988 and now operates several uranium mines in North America.

Canadian Oil Sands Ltd.

Canadian Oil Sands Limited of Calgary is a Canadian company that generates income from its oil sands’ investment in the Syncrude Joint Venture. PanCanadian Petroleum formed Canadian Oil Sands Trust in 1995 with a 10% interest in Syncrude. The company also holds some arctic natural gas interests.

First Quantum Minerals Ltd.

A Vancouver-based mining and metals company whose principal activities include mineral exploration, development and mining. Known for its mining activity around the world, the company recently received the best mining industry award at the Zambia International Trade Fair.

GlencoreCanada Corporation

Glencore Canada Corporation plays a major role in base and precious metals mining, processing, smelting and refining in Canada, with significant operations in Ontario, Québec and New Brunswick. The Company is a Canadian subsidiary of global resource giant Glencore Xstrata, headquartered in Switzerland. Glencore Xstrata is a leading producer and marketer of a broad range of mineral and agricultural commodities. It assets encompass more than 150 mine sites, metallurgical facilities, offshore oil production sites, and farms and other agricultural operations, with a workforce of approximately 190,000 employees and contractors.


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Key Players - MajorsGoldcorp Inc. Goldcorp is a gold producer headquartered in Vancouver. The company is engaged in gold mining

and related activities including exploration, extraction, processing and reclamation. In addition to mining activities in Canada and around the world, the organization has also received international recognition for being a Socially Responsible Company by foreign governments.

IAMGOLD Corporation

IamGold Corporation is a Toronto-based international gold producer. The company is engaged in the exploration, development, and production of mineral resource properties throughout the world.

Iron Ore Co. of Canada

The Iron Ore Company of Canada (IOC) is a leading Canadian producer of iron ore pellets and concentrates on serving customers worldwide.

KGHM International Ltd.

KGHM International is one of the larger producers of copper and silver in the world. The mining and metallurgy company is a subsidiary of KGHM Polska Mied of Poland. They are developing an ore body in Kamloops, BC.

Kinross Gold Corporation

Kinross Gold Corporation ranks among the world’s largest gold companies with mines and projects in the United States, Brazil, Chile, Russia, Ghana and Mauritania. The company was founded after a merger in 1993 of three companies, initially owning a mine in British Columbia. In addition expanding on the worldwide mining market, Kinross Gold has also been recognized in Canada as being among the country’s 50 most socially responsible corporations.

Lundin Mining Corporation

Lundin Mining, headquartered in Toronto, is a multinational minerals company with operations in Sweden, Ireland, Spain, Portugal, the Democratic Republic of Congo, and Russia. Lundin Mining was founded in 1994.


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Key Players - MajorsOsisko Mining Corp.

Osisko is a Canadian precious-metals mining company headquartered in Montreal. It operates in Canada with a focus on gold mines.

Pan American Silver Corp.

Pan American is engaged in the operation and development of and exploration for silver producing properties and assets. The Company's principal product is silver. The Company also produces and sells gold, zinc, lead, and copper. The Company is engaged in mining operations and is developing mining projects in Mexico, Peru, Argentina and Bolivia, and has control over non-producing silver assets in each of those jurisdictions and in the United States.

Potash Corp. of Saskatchewan Inc

PCS is a fertilizer company. The Company operates in three business segments: potash, nitrogen and phosphate. The Company owns and operates five potash operations in Saskatchewan and one in New Brunswick. Its nitrogen operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid.

Rio Tinto Alcan Inc.

Rio Tinto is a leading global mining group that focuses on finding, mining and processing the Earth's mineral resources.

Silver Wheaton Corp.

Silver Wheaton Corp. is a pure play mining company and one of the larger in the business of silver streaming. The company was established in 2004.

Suncor Energy Suncor Energy is a Canadian integrated energy company based in Calgary that specializes in the production of synthetic crude from oil sands. It was founded in 1919 in Montreal as Sun Company of Canada, a subsidiary of Sun Oil (now Sunoco). Suncor is the world’s largest producer of bitumen and owns and operates refineries in Alberta, Ontario and Quebec.


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Key Players - MajorsSyncrudeCanada Ltd.

Syncrude Canada is one of the world’s larger producers of synthetic crude oil from oil sands and the largest single source producer in Canada. It is located just outside Fort McMurray, Alberta.

TeckHighland Valley Copper

The mining operation of Highland Valley Copper is owned by Teck Resources, which operates one of the world's largest open-pit mines. Highland Valley Copper is located in south central British Columbia, Canada, and produces copper and molybdenum concentrates.

TeckResources Limited

Teck Resources is engaged in the business of exploring for, acquiring, developing and producing natural resources. The Company is organized into business units focused on steelmaking coal, copper, zinc and energy. Through its interests in mining and processing operations in Canada, the United States, Chile and Peru, the Company exports seaborne steelmaking coal and produces mined zinc. The Company also produces lead, molybdenum, silver, and various specialty and other metals, chemicals and fertilizers.

Vale Canada Ltd.

Vale Canada (formerly Vale Inco, CVRD Inco and Inco Ltd.) is a global mining company with headquarters in Toronto. Vale is a leader in the production of iron ore and the second largest producer of nickel.

Yamana Gold Inc.

Yamana is a Canada-based gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation. The Company has precious metal properties and land positions throughout the Americas including in Brazil, Chile, Argentina, Mexico and Canada. In Canada, Yamana operates the Canadian Malartic mine in Quebec (50% interest).


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Key Players - IntermediatesAlamos Gold Inc.

A Canadian-based intermediate gold producer with diversified production from three operating mines in North America, including the Young-Davidson Mine in northern Ontario, Canada, and the Mulatos and El Chanate Mines in Sonora, Mexico. The Company has a leading growth profile with exploration and development projects in Mexico, Turkey, Canada and the United States. Alamos recently acquired AuRico Gold (another Canadian gold mining company), which provided access to its Young-Davidson mine in Ontario, which has 5.6 million ounces of gold resources.

Aura Minerals Inc.

Aura Minerals Inc. is a Canadian mid-tier gold and copper production company focused on the development and operation of gold and base metal projects in the Americas. The company’s producing assets include the copper, gold and silver.

Capstone Mining Corp.

Capstone is a Canada-based mining company engaged in the production of and exploration for base metals in the United States, Mexico, Canada and Chile. Its subsidiaries include Minto Explorations Ltd., which owns and operates the copper Minto Mine located in Yukon, Canada and Kutcho Copper Corp., which owns the Kutcho copper-zinc project in British Columbia, Canada.

Centerra Gold Inc.

Centerra Gold Inc. is a gold mining company based in Toronto that owns and operates gold producing mines and it also has interests in gold exploration properties.Centerra Gold and Premier Gold Mines Ltd. have a 50/50 joint venture partnership for the purpose of the joint ownership and development of Premier’s Trans-Canada Property including the HardrockGold Project located in the Geraldton-Beardmore Greenstone belt in Ontario.

Franco-Nevada Corporation

Franco-Nevada is a gold-focused royalty and stream company based in Toronto, Canada. The Company's additional interests are in platinum group metals and other resource assets. The Company's business model provides investors with gold price and exploration optionality. The Company has a diversified portfolio of royalties and streams by commodity, geography, revenue type and stage of project. Its assets include Gold in Canada.


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Key Players - IntermediatesHudBayMinerals Inc.

A Canada-based mining company engaged in the production of copper concentrate, consisting of copper, gold and silver, as well as zinc metal. The Company is focused on the discovery, production and marketing of base and precious metals in North and South America. Through its subsidiaries, the Company owns copper/zinc/gold mines, ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan, and copper projects in Cusco (Peru) and Arizona (US).

New Gold Inc. New Gold Inc. is a multinational mining company with gold, silver and copper-containing assets. It engages in exploration, development and polymetallic production activity around the world. They are most active in BC.

SherrittInternational Corporation

Sherritt International is a Canada-based nickel-focused mining company engaged in the mining and refining of nickel and cobalt from lateritic ores with operations in Canada, Cuba and Madagascar. The Company has three segments: Metals, Oil and Gas and Power. The Company licenses its technologies and provides metallurgical services to commercial metals operations around the world. In Fort Saskatchewan, Alberta, Canada, the Company has a metal refinery, where it also produces nickel, cobalt, ammonia, sulphuric acid, and ammonium sulphate.

Taseko Mines Ltd.

Taseko is a Canada-based mining company engaged in acquiring, developing, and operating large tonnage mineral deposits. Headquartered in Vancouver, Taseko is the owner (75%) and operator of the Gibraltar Mine, the second largest open pit copper-molybdenum mine in Canada. Taseko's AleyNiobium Project, Florence Copper Project, and New Prosperity Gold-Copper Project are all advanced staged projects which provide the company with a diverse commodity pipeline.

Thompson Creek Metals Company Inc.

TCM is a mining company engaged in the full mining cycle, which includes acquisition, exploration, development and operation of mineral properties. The Company operates in three segments: Copper-Gold (in British Columbia, Canada), Canadian Operations Molybdenum (in BC, Canada) and US operations Molybdenum. Its principal products are copper, gold, and molybdenum.


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Key Players - JuniorsAvalon Rare Metals

A Canadian mineral development company with a primary focus on the rare metals and minerals, headquartered in Toronto, Canada. Avalon specializes in niche market metals and minerals with growing demand in new technology. The company has three advanced stage projects, all 100%-owned, providing investors with exposure to lithium, tin and indium, as well as rare earth elements, tantalum, niobium and zirconium. Avalon is currently focusing on its Separation Rapids Lithium Project near Kenora, Ontario and its East Kemptville Tin-Indium Project in Yarmouth, Nova Scotia.

Canadian Zinc Corporation

Canadian Zinc Corporation is a development stage company listed on the Toronto Stock Exchange under the symbol "CZN", in the United States on the OTCQB under the symbol "CZICF" and in Germany on the Frankfurt under the symbol "SRS" and is engaged in the business of exploration and development of natural resource properties. The Company has an experienced Executive and Board and is headquartered in Vancouver, BC.

Imperial Metals Corporation

Imperial Metals is an exploration, mine development and operating company based in Vancouver, British Columbia. Their expertise and focus is on base and precious metals. Their exploration and operations are located primarily in British Columbia, Canada.

NorontResources Ltd.

Noront is engaged in the exploration, development and acquisition of properties prospective in base and precious metals, including nickel, copper, platinum group metals, chromite and vanadium.They have the largest land position in the Ring of Fire, an emerging multi-metals area located in the James Bay Lowlands of Northern Ontario.

Yukon Zinc Corp.

A Canadian-based mining and exploration company operating the Wolverine Mine in Yukon, Canada. Yukon Zinc has been active in the southeast Yukon region for over 15 years and has taken the Wolverine zinc-silver-copper-lead-gold mine from exploration through development into operation.


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Key Players - EPCM Consultants

Examples of Engineering, Procurement, Construction, Management Services (EPCM) Consultants:

– Amec Foster Wheeler www.amecfw.com

– Ausenco www.ausenco.com

– BBA Inc. www.bba.ca

– Bechtel www.bechtel.com

– Fluor www.fluor.com

– Golder Associates www.golder.ca

– Hatch www.hatch.ca

– Jacobs Engineering www.jacobs.com

– Knight Piésold www.knightpiesold.com

– Lycopodium Minerals Canada www.lycopodium.com.au

– PINTER & Associates www.pinter.ca

– Redpath www.redpathmining.com

– SNC-Lavalin www.snclavalin.com

– Tetra Tech www.tetratech.com

– Worley Parsons www.worleyparsons.com


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Key Players - Associations

Mining Association of Canada – MAC is the national organization for the Canadian mining industry. Its members account for most of Canada’s production of base and precious metals, uranium, diamonds, metallurgical coal, mined oil sands and industrial minerals and are actively engaged in mineral exploration, mining, smelting, refining and semi-fabrication. Developed the Towards Sustainable Mining (TSM) initiative, which allows mining companies to turn high-level environmental and social commitments into action on the ground. www.mining.ca

Prospectors & Developers Association of Canada – PDAC is the national voice of the Canadian mineral exploration and development community. With a membership of over 9,000 individual and 1,250 corporate members, the PDAC’s mission is to promote a responsible, vibrant and sustainable Canadian mineral exploration and development sector. The PDAC is also known worldwide for its annual convention, regarded as the premier event for mineral industry professionals. PDAC 2016 will take place at the Metro Toronto Convention Centre from March 6-9. www.pdac.ca

Association of Consulting Engineering Companies – Canada – ACEC Canada represents over 450 firms offering a wide range of engineering, scientific and other professional services to both the private and public sectors. ACEC is the national voice of consulting engineering on business, public policy and regulatory issues. www.acec.ca

Canadian Institute of Mining, Metallurgy and Petroleum – CIM is a technical society of professionals in the Canadian minerals, metals, materials and energy industries. In 2006, the organization had 12,000 national members. The CIM's mission is to provide leadership, quality services, and value to CIM members through technical forums, publications, professional and social networking opportunities, continuing education, and recognition of excellence programs. www.cim.org


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Regulatory Environment

– The Canadian mining industry is governed by dozens of federal, provincial and territorial acts and regulations across a broad spectrum of subject matter.

– Regulations are generally administered by provincial authorities, although many aspects require approval from federal government departments.

– Each province has it own laws and regulations governing environmental impact assessments, and mine operating and closure criteria and requirements.

– Mineral property ownership: mineral rights are government-owned (90% of

the land) and cannot be purchased, only leased, by individuals or companies.

(The Inuit community owns the mineral rights for 10% of Nunavut.)

– Leases: the regulation of mining activities on publicly owned mineral leases falls

under provincial/territorial government jurisdiction


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Regulatory Environment

– Effluent and environmental impact - Federal regulations pertain primarily to the quality of mine effluent and its impact on fish. The regulations establish procedures for monitoring water quality, and set discharge criteria and permissible impacts.

– Examples of legislations:

– Canadian Environmental Protection Act, including the Chemicals Management Plan and Interprovincial Movement of Hazardous Waste Regulations

– Canadian Environmental Assessment Act

– Fisheries Act, including the Metal Mining Effluent Regulations

– Navigable Waters Protection Act/Navigation Protection Act

– Species at Risk Act

– Migratory Birds Convention Act

– Transportation of Dangerous Goods Act


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Canadian Mining Industry Challenges

– Lack of skilled human capital (generational turnover)

– Regulatory challenges

– Social license issues

– Aging mines/infrastructure; deeper mines

– Depletion of reserves

– Increasing cost and remoteness of deposits

– Resource nationalism


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Source: Canada as a Global Mining Leader: Inside and Out.

http://mining.ca/sites/default/files/documents/MACBrazilPresentationSept2013.pdf

Company Info

- Listed, Canadian, intermediate mining company with operations, development properties and exploration activities across the Americas principally focused on the discovery, production and marketing of base and precious metals.

- Revenues of $560 million CAD; 1,797 employees- 3 mines in Manitoba, Canada; 1 mine in Arizona, USA; and 1 mine in Peru

Trends / Drivers

- Raising capital is difficult (Hudbay has been okay though)- The “junior space is almost dead”- Water is an issue. Particularly in Chile, the government has become quite strict in the use of

aquifers.- Grades are diminishing, with less rich ore bodies- Equipment suppliers are building progressively larger and larger units while mines are being

built in more remote areas, two trends that are not complimentary (“a double whammy!”). There is a need for modular construction that can be assembled off site. (E.g. FLSmidth’s 660 cubic meter float is too large)

- Tailings disposal and water management – a need from a strategic direction point of view is tailings disposal. The technology is not there yet. Water has to be better managed and we need to minimize the use of water.

- Tighter environmental standards – E.g. a neighboring mind in Michigan (Lundin’s Eagle Mine) had to build in a wastewater treatment facility into their mill site, which Alan found to be “extreme” from an industry point of view.

Expert Interview Summary


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Alan Hair, Sr. VP & COO / President & CEO as of Jan. 2016, Hudbay Minerals



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Alan Hair, Hudbay Minerals

Concerns / Development areas

- They have a general frustration that development projects are long-term decisions, with long term returns, which try to get financing in short-term markets.

- Constant theme = disappointed by suppliers- Disappointed by general skill set and quality assurance- Would be interested in suppliers that can fund capital (e.g. Hudbay and Caterpillar)- Suppliers might have to get more involved in the process that works to partner with

indigenous groups- Quality assurance (globally) - Systems need to be in place to deal with quality issues.

Global companies don’t provide consistent quality in every country.

Suppliers - Familiar with Finnish suppliers (e.g. Outotec and Metso)- Prefer established Western suppliers (rather than riskier Chinese)

Recommendations - Local knowledge is important- Technical support is key



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Company Info - Listed, Canadian, junior mining company engaged in the exploration, development and acquisition of properties prospective in base and precious metals

- 15 employees- 2 offices and exploration camp- 1 advanced project waiting for permits and infrastructure commitment and 10+

promising resource targets; all in NW Ontario region known as Ring of Fire. - Eagle's Nest: 11-20 year underground mine with high grade nickel, copper and

palladium; platinum and gold. Feasibility study done, detailed study next once funding and road commitment received from provincial government.

- Another Ni-Cu project is likely. - Have all major chromite deposits in North America but development depends on

markets. Preliminary studies complete. Also have VMS deposits and diamonds.

Trends / Drivers - Metal markets (demand, price)- Stainless steel industry demand is main for their first projects- Aboriginal issues and provincial permitting are considered hurdles by financing

sources: funding issue- Lengthening permitting process is driving investment away- Provincial politicians consumed with gaining or keeping power

Mark Baker, Vice President, Projects, Noront Resources


- Automation is not as advanced in the mobile equipment as they need- Electrification of fleet is also not advancing quickly enough. (Diesel is a power drain)- Supplier involvement in design and construction is important. They do not applying

EPCM since they want better control and want constructors involved in design. Some suppliers are better in this role than others.

- Interested in supplier who assume the role of both developing and operating

Suppliers - Familiar with Finnish suppliers (e.g. Outotec)- Prefer technology leaders with good record of (on-sight) support and reliability- Purchase and operating costs are important: life of asset- A ‘cradle to grave’ approach is valuable from suppliers

Recommendations - Canadian presence and support network- Outotec is a good example: broad product range, creates alliances for gaps, leader or

major player in most plant areas and knows their capabilities and openly states what they can’t do. Hires local sales and key contacts but keeps Finnish interaction.



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Mark Baker, Noront Resources



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Company Info - Listed, Canadian, junior mining company with 4 employees- One project in Michigan, the Back Forty Project, which involved feasibility study,

mine planning and plant design. It is an early development stage volcanogenic massive sulfide deposit containing gold, zinc, lead, silver and copper, located in the Upper Peninsula of Michigan, USA and is the primary mineral property interest of the Company.

Trends / Drivers - Project Financing – They’ve had to come up with creative ways of raising money and clearly determining who they are attractive to within the investment community

- They size of a project in this market is a key driver. E.g. a $1 billion project is too risky in this climate

- They are putting more constraints on industry and prefers to work with those that “feel his pain” in terms of the financing area

Andrew Boushy, Vice President, Project Development, Aquila Resources


- There is a 3-way relationship between the owner of a mine, the engineering company and the OEM supplier. However, the experience is not there to provide the best operation of a mine.

- The OEM is usually left out of the process in plant design and they’re not seen as having many pre-established relationships in terms of execution and procurement strategies. Their engineering is looked at as static.

- The typical EPCM model is a deterrent for owners. An EPC model might be better in terms of providing a turnkey project for a lump sum so that someone would tie everything together. The supplier could work off a buy and build model.

Suppliers - Familiar with Finnish suppliers (e.g. Outotec & Metso)- He values suppliers that can get their “skin in the game” (vs. those that just want to

get their purchase order filled and move on), those that are flexible in their approach and those who “feel his pain”

- Any supplier he chooses has to make sense in terms of quality and access and the price landed cost is important to know. Also, the life cycle cost is important to understand.

Recommendations - The Finnish value proposition is steeped in technology. Their engineering is too product focused. “Nothing lives in a box.” It has to be “engineering on the fly” –flexible and adaptable.

- Engineering has to migrate to an entire solution.



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Andrew Boushy, Aquila Resources

Company Info - Finnish public corporation providing technologies and services for the metal and mineral processing industries

Trends / Drivers - Lack of skilled resources in industry in general.- Growing trend is to look for engineered technology packages from trustworthy

suppliers (“process island packages”) instead of just equipment or component deliveries (which has been common until now).

- These packages aim to incorporate ongoing support services.- Juniors have to push for their projects sometimes overly optimistically, otherwise

they die. Mid-size and larger companies have to secure growing metal output in the future.

Concerns - Economic downturn and metal prices- Uncertainty of China and world economy- Engineered technology packages require a change in thinking and processes from all

parties so that everyone’s skills can be better utilized to handle bigger packages.- Once the scope has been finalized by all parties, project delivery has to be delivered

in a standardized and disciplined way with no “new inventions” during the delivery.



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Matti Tarvainen, VP, Business Concept Development (Retired), Outotec



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Development areas

- Professional project management.- Need to improve expert to expert communication between client, engineering

company and supplier in order to finalize and lock scope to be delivered.- Technology suppliers have to be involved early on in the design process and develop

relationship with the client.- Improve handling of infrastructure for large projects such as roads, buildings, pipelines.

Suppliers - In addition to proprietary technologies, do engineering and purchase of auxiliary components to form an engineered package (process island package).

- Optimize choice of sub-suppliers based on securing quality and economy of supplies and general logistics to project site.

Recommendations - Be there. You have to operate locally either through a good agent or your own company.

- Study companies that are the most promising and potentially provide the best success for your products.

- Research what they have published in terms of feasibility studies from sedar.ca- Suppliers have to be known and be there early in terms of when the RFP is put out.- New suppliers can enter if they’re more economical and reliable in terms of quality and

deliveries.- It’s important to show references and be ready to provide guarantees if requested but

be able to stand by them.

Matti Tarvainen, VP, Business Concept Development (Retired), Outotec

Key Information Sources on Canadian Mining Industry

Exhibitions

– PDAC Convention www.pdac.ca/convention

– CIM Convention convention.cim.org (Canadian Institute of Mining, Metallurgy and Petroleum)

– CMP Conference www.cmpsoc.ca (Canadian Minerals Processing)

– MINEXPO www.minexpo.com

– CIM regional day events www.cim.org/en/News-and-Events/Events.aspx

Publications

– Canadian Mining Journal www.canadianminingjournal.com

– Northern Miner www.northernminer.com

– Mining Journal www.mining-journal.com

– CIM Magazine magazine.cim.org

– E&MJ www.e-mj.com (Engineering and Mining Journal)

– MEI www.min-eng.com (Minerals Engineering International)

– Miners News www.minersnews.com

– Canadian Mining Magazine canadianminingmagazine.com

– Canadian Mining & Energy www.miningandexploration.ca


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Sources

– Government of Canada (2014) Mining Industries. At URL: http://www.international.gc.ca/investors-investisseurs/assets/pdfs/download/Mining_Industries.pdf

– Government of Québec (2015) The Plan Nord toward 2035. At URL: http://www.plannord.gouv.qc.ca/wp-content/uploads/2015/04/Long_PN_EN.pdf

– Mining Association of Canada (2014) Facts and Figures of the Canadian Mining Industry. At URL: http://mining.ca/sites/default/files/documents/Facts_and_Figures_2014.pdf

– Mining Association of Canada et al. (2015) Levelling the Playing Field: Supporting Mineral Exploration and Mining in Remote and Northern Canada. At URL: http://mining.ca/sites/default/files/documents/Levelling_the_Playing_Field.pdf

– Mining Association of Canada (2014) Towards Sustainable Mining. At URL: http://mining.ca/towards-sustainable-mining

– Natural Resources Canada (2015) Minerals and Metals Fact Book 2015. At URL: http://publications.gc.ca/collections/collection_2015/rncan-nrcan/M34-23-2015-eng.pdf

– Natural Resources Canada (2015) Mining Regulations. At URL: http://www.nrcan.gc.ca/mining-materials/policy/legislation-regulations/8726

– PDAC (2012) The Mineral Exploration Tax Credit and the Future of the Mining Industry in Canada. At URL: http://www.pdac.ca/docs/default-source/public-affairs/finance-taxation---pdac-research-paper.pdf?sfvrsn=6


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Thank you