Australia Power & Western Australia Mining 2014

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014 Economy | Transmission and Generation | Exploration and Production | Finance

Image: PowerSense

Dear readers, In August of 2012, Australia’s then Minister of Natural Resources Martin Ferguson declared the end of the resources boom that had been the backbone of the country’s strong economy. The Minister’s comments came shortly after BHP Billiton announced that the company was shelving two multibillion-dollar expansion projects in South Australia and Western Australia after seeing their profits drop amidst lowered iron ore prices. As expected, the mining community reacted with outrage towards his assessment that the decades-long boom had come to an end.

Nearly two years later, it would appear that Minister Ferguson was not entirely incorrect. Australia’s mighty resources industry has indeed slowed. Statistics from the Bureau of Resources and Energy Economics in October 2013 showed that investment into the mining sector had decreased considerably over the previous six-month period as the industry transitioned into a production phase. Australia’s mining industry has to adjust to a new paradigm where money does not flow easily and growth is not a sure thing.

It is fitting that we start our report with a look at Western Australia, which is a microcosm of this new way of doing business. The state is a perfect example of an economy built on the spoils of Australia’s mining boom. From the bustling capital city of Perth with its $5 coffee to the isolated real estate of Karratha in the iron-rich Pilbara region, where a 3-bedroom house rents for over $1,500 a week, Western Australia has been one of the biggest beneficiaries of the boom and has the most to lose once it ends.

Mining has been part of the global economy for decades, yet tends to suffer from short-term amnesia during tough times. In Western Australia, most of the interviewees you will see in this book grew up in the mining industry and refuse to panic at the talk of “boom” and “bust” cycles to which Minister Ferguson alluded in 2012.

We hope you enjoy reading about their new strategies and their faith in the sector.

Australia’s energy sector is also looking at new ways of doing business as its aging infrastructure is burdened by the task of powering such an energy-intensive industry as mining with the added challenge of coping with government taxes and regulations. The country is well positioned to continue its role as an important supplier of world energy needs, while maintaining domestic energy supply. However a collaborative approach from the public and private sector to construct the nation’s energy infrastructure to maintain access to affordable and reliable energy to enhance energy policies, competitiveness and efficiency in the energy market, and promote the transition towards clean energy technologies.

This book is the result of months of research, interviews and analysis. We hope you enjoy reading it as much as we enjoyed our stay in Australia.

Best regards, Angela Harmantas, Katie Bromley, Katya Koryakovtseva and JP Stevenson

CONTENTS

A NEW ENERGY PARADIGM

HEDGING BETS

Australia’s Power Generation and Transmission 8. An Introduction to Australia: A brief overview of the country and economy 10. Interview with the Clean Energy Council 11. Interview with AMP Capital 12. Powering a Nation: Australian generation and transmission 14. Interview with TransGrid 16. Interview with the PowerSense 17. Interview with Landis+Gyr 18. Interview with Siemens 19. Interview with Wärtsilä Australia

SPARING THE MINE AND SPOILING THE MINER

Western Australia’s Mining Industry 22. An Introduction to Western Australia: A brief overview of the state and economy 24. Interview with the Department of Mines and Petroleum 25. Interview with the Association of Mining and Exploration Companies (AMEC) 26. Forward to Better Days: Mining in Western Australia 28. Interview with PCF Capital 30. Interview with the Australian Securities Exchange 31. Interview with Quantitative Group 32. Interview with PwC 33. Interview with KPMG 34. Perth: A center of mining excellence 35. Interview with Byrnecut

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

A Diversified Exploration and Production Portfolio 38.

39.

40.

42.

44.

45.

46.

48.

50.

52.

54.

55.

57.

58.

59.

Iron Ore: New frontiers Interview with Padbury Mining Ltd Gold: Grappling with the market Interview with Norton Gold Fields Ltd Interview with Millenium Minerals Ltd Interview with Gascoyne Resources Ltd Interview with Doray Minerals Ltd Nickel: Nickel-and-diming deposits Interview with Sirius Resources Other Commodities: Fortifying Western Australia’s mineral base Interview with Sheffield Resources Ltd Interview with Toro Energy Ltd Analysis: Promoting Exploration Interview with DLA Piper Australia Interview with Lazard

INTO THE FUTURE

Final Thoughts, Index and Credits 62. Final Thoughts 64. Index & Company Guide 66. Credits

This research has been conducted by Angela Harmantas, Katie Bromley, Katya Koryakovtseva and JP Stevenson Edited by Barnaby Fletcher | Graphic Design by Gonazalo Da Cunha A Global Business Reports Publication For more information, contact info@gbreports.com, follow us on Twitter @GBReports or check out our blog at gbroundup.com

Industry Interviews Exclusive interviews with the leading industry figures in Australia’s mining and power industries, including the Clean Energy Council and the Minister of Mines and Petroleum for Western Australia.

10, 24 Analysis In-depth opinions on the efforts being made by the national and state governments to promote exploration activity in Western Australia, and what more needs to be done, from our weekly newsletter the GBRoundup.

57

Mineral Guide A detailed mineral-by-mineral look at the exploration and production activities taking place in Western Australia, covering iron ore, gold, nickel and a range of other commodities

36,59 Quantitative Data

WA COM

TOTAL Source:

MENTMines and Petroleum INVEST of MINING rn Australia Department

Western

2012-2012

MODITI

Department

Australia

ES BY VAL

of Mines

UE

um

and Petrole 2012-2013

MODITIES

The most relevant quantitative data presented in the most easily accessible format, allowing you to view economic and market statistics, identify trends and visualize infrastructure.

Source:

Weste

REST

ALIA

TOTAL

ALIA OF AUSTR

ALL COM

IRON ORE

RN AUSTR

WESTE

LNG

100,000

CRUDE

80,000

DENSATE

OIL & CON

GOLD

60,000

ALUMINA NICKEL

40,000

20,000

$ million

2004 2005

2003 2004

2005 2006

2006 2007

2008 2009

2007 2008

2009 2010

2010 2011

Source:

CAPEX

COAL

MILLION

9, 23, 38, 40, 48, 52 Iron Ore Nickel rals and Other Mine ture Infrastruc l Sub-Tota

80,000

70,000

90,000

YEES

OF EMPLO

40,000

1996 1997

910

7,265 6,969

2: 2011-201 ces ing Licen Prospect ces n Licen Exploratio Leases Mining Other & Claims ral Mine Act Other 1904

1998 1999

2000 2001

2002 2003

Source:

2004 2005

2005 2006

2006 2007

2008 2009

Source:

Weste

Weste

21

186

68,935

23,474

Total

Final Thoughts

851

6,834 6,503

3: 2012-201 ces ing Licen Prospect ces n Licen Exploratio Leases Mining Other & Claims ral Mine Act Other 1904

52,895 2,451 5,486

6,195 3,377

21

186

61,704

Industry leaders give their opinions on the future facing Australia’s mining and power industries: trends, challenges, opportunities and what they need to do to thrive.

23,095

Total

ITU EXPEND ATION Petroleum L EXPLORment of Mines and ia Depart MINERA Source:

Western

Austral

ALIA

REST OF

RE

m Petroleu ral Sands Heavy Mine Iron Ore s Diamond Nickel als Base Met Alumina

AUSTRALIA

RN AUSTR

WESTE

4000

3000

2000

1000

$ million

2003 2004

62,63

2004 2005

2005 2006

2006 2007

2007 2008

2008 2009

2009 2010

2010 2011

2011 2012

2012 2013

Gold Other

2010 2011

ER T BY MIN LOYMENand Petroleum ING EMP of Mines

WA MINrn Australia Department

S um EXPORT MODITY ment of Mines and Petrole ia Depart WA COM rn Austral

60,396 2,285 5,323

5,897 3,157

110,000

80,000

000 HA

NUMBER

Weste

100,000

100,000

60,000

FORCE NTS IN um L TENEME of Mines and Petrole MINERArn Australia Department Source:

NUMBER 120,000

47,005

23,735

60,000

50,000

40,000

Weste

Source:

23,208 3,497 16,997

15,680 197 7,838

30,000

T LOYMENand Petroleum ING EMP of Mines WA MINrn Australia Department

3,303

20

20,000

$ 10,000 millions

DOLLARS PLANNED/ POSSIBLE

UNDER

Gold

SANDS

MINERAL

HEAVY

/ COMITTED TION CONSTRUC

PROJECTS

ity Commod

LPG

ALS

BASE MET

Weste

MAJOR

L GAS &

NATURA

2012 2013

2011 2012

TS PROJEC MAJOR 3) MENT IN um BER 201 INVEST and Petrole of Mines SEPTEM (AS OF rn Australia Department

21% 1% 54% 0.3% 4% 2% 3% 14% 3%

Iron Ore Alumina Gold Nickel ral Sands Heavy Mine Other

A New Energy Paradigm: Australia’s Power Generation and Transmission

“The Australian market is highly competitive, with seven positive reviews of the Renewable Energy Target (RET) policy over the years, giving positive signals to the industry. However during periods of policy review the industry has been subject to investor uncertainty, which has slowed down investment into the clean energy sector… The biggest challenge in Australia for renewable energy remains the need for policy stability over the short, medium and long term. Since 2001 there has been bipartisan support for the RET, and this long-term policy approach is what our industry needs to grow sustainably.”

- Chris Judd, CEO and Managing Director, Senvion Australia Image: Pacific Hydro

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Darwin

An Introduction to Australia

Indian Ocean Derby Broome

Port Hedland

A brief overview of the country and economy

Tennant Creek

M

NORTHERN TERRITORY

Alice Springs

Learmonth WESTERN AUSTRALIA

Carnarvon

SOUTH AUSTRALIA

Geraldton Kalgoorlie

Cook Port Augusta

Perth Port Lincoln

500km

2013 marked the 21st consecutive year of growth by the Australian economy. Since the country last suffered a recession in 1991, it has sailed smoothly through the 1997 financial crisis in nearby East Asia, emerged from the 2009 global financial crisis with a few minor bruises – it saw the best growth in the OECD in 2009 – and recorded 2.8% GDP growth in 2013: a year in which the economies of Western Europe and the North America, for the most part, remained stagnated with growth rates of between 0% and 2%.

This performance is attributed to a range of causes. Cynics have pointed to the geographical isolation of Australia and claimed that this has, in some way, shielded them from troubles in the rest of the world. The proximity of the country to the China and Southeast Asia – and the links between Australia and Asia due to high levels of immigration – has allowed it to access these growth markets easier than Western Europe. It is the booming AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

commodity prices of the past few years, and the seemingly insatiable demand for commodities in Asia, that has brought prosperity to Australia’s resource-rich economy. Many of those pointing to these reasons will go further, claiming that Australia has won its wealth through luck – geological and geographical – that has allowed it to ignore structural problems. When growth in China slows, they say, Australia will suffer.

There is no doubt that Australia has benefitted from Asian growth and its natural resource wealth. Mining has been the country’s primary economic driver for years.

Yet 2013 did see falling commodity prices and a slow down in China, where GDP growth fell to its lowest level since 1991 (still a healthy 7.6% though). Australia, despite struggles in the mining sector and some related areas of the economy, still posted positive growth. Its previous successes owe more to government policies – which in 2009 included a $50 billion -8-

fiscal stimulus package and a cutting of interest rates to historic lows – than luck.

While the natural resources of Australia historically played a major role in shaping the country’s economy and still account for a significant portion of the country’s GDP, the country is not as single-sector dependent as some would claim. A boom in manufacturing, particularly after the Second World War, and the development of a sophisticated financial sector in the late 20th century has led to Australia now enjoying a diversified and prosperous economy. The depreciation of the Australian dollar from its heights of 2011, 2012 and the start of 2013 – during which it generally remained above the US dollar – has supported export-orientated industries. Advanced manufacturing, such as the automotive industry, aerospace, defense, medical and electronics), has increasingly taken a leading role, supported by increased spending on research and development and well protected intelIndustry Explorations

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POPULATION AND WORKFORCE INFORMATION Source: CIA World Factbook, CAPP

Cairns

Population 2014 22,507,617

Pacific Ocean

Mount Isa Mackay

Gladstone

QUEENSLAND

Brisbane

Bourke

AUSTRALIA AT A GLANCE Source: CIA World Factbook

Broken Hill

delaide VICTORIA

NEW SOUTH WALES

Canberra

Sydney

Melbourne

TASMANIA

Hobart

lectual property. Tourism numbers and receipts have steadily increased over the past two decades. The country’s financial center is arguably the hub of the Asia Pacific region, fighting for the title with Singapore and Hong Kong.

The country is certainly not free from worries. Labor productivity has slowed over the past decade and the population, like that of many developed countries, is aging. Australia stands to suffer particularly heavily from climate change: being, as it is, the driest country on earth. This danger was aptly demonstrated in 2011, when floods of coal mines caused coal export revenue losses of between $5 billion to $9 billion. These challenges will not be easily solved by lowering interest rates or other fiscal policies. The issues they raise – carbon taxes, encouraging immigration, and so on – are politically controversial. Yet they must be dealt with if Australia is to continue its impressive run of success. • Industry Explorations

Population: 22,507,617 (July 2014 estimate) Capital: Canberra Head of Government: Prime Minister Anthony John Abbott Currency: Australian Dollar (AUD) GDP: $1.488 trillion (2013 estimate) Growth Rate: 2.5% (2013 estimate) GDP per Capita: $43,000 (2012 estimate) Economic sector breakdown: agriculture: 3.8%, industry: 27.4%, services: 68.7% (2013 estimate) Exports: $251.7 billion (2013): coal, iron ore, gold, meat, wool, alumina, wheat, machinery and transport equipment Imports: $245.8 billion (2013): machinery and transport equipment, computers and office machines, telecommunication equipment and parts; crude oil and petroleum products Major Trade Partners: China, Japan, USA, South Korea

Labor Force 2013: 12,400,000 Unemployment 2014: 742,200 Mining Employment 2013: 261,800 Manufacturing Employment 2013: 938,800 Construction Employment 2013: 1,045,000

GDP GROWTH RATE Source: World Bank

AUSTRALIA

6

OECD MEMBERS

3.4%

4

2

1.5% 0

-2

%

2005

2006

2007

2008

2009

2010

2011

2012

GDP (CURRENT US DOLLARS) Source: World Bank

$1.53 TRILLION

1,600 1,400 1,200 1,000 800 600 400 200 $B

2005

2006

-9-

2007

2008

2009

2010

2011

2012

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Russell Marsh

Policy Director

CLEAN ENERGY COUNCIL

Could you provide us with a brief introduction to the Clean Energy Council?

The Clean Energy Council is the peak industry body for clean energy distributors, which include energy efficiency and renewable energy providers. The Clean Energy Council exists to serve its 550 members and looks after their interests on a global scale. The Clean Energy Council is solely focused on energy efficiency and renewable energy and has no affiliation with gas, nuclear or coal industries.

What are some of the main objectives that the Clean Energy Council is currently involved with?

The Clean Energy Council is currently focused on the review of the government’s renewable energy targets. The current target was increased in 2009 to produce 20% of electricity generation by renewable energy sources by 2020. The federal government set up a Climate Change Authority that has the responsibility to review energy targets and to establish whether objectives are being effectively met. The Renewable Energy Target is the single piece of legAUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

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islation that affects all of our membership and is the most important policy for the renewable energy industry in Australia. Policy reviews create uncertainty throughout the entire industry so it is important that the Clean Energy Council ensures that all of our members remain unscathed. There are seven recommendations that suggest some form of change to the design of the energy target. The Clean Energy Council is focused on the possible impact of any potential changes on the industry and our members.

ters and renewable energy. New South Wales and Victoria are looking to introduce new planning regulations that are more stringent to deploy wind energy in Australia. The Queensland government and the New South Wales government have both spoken publicly of their lack of support for the new energy targets.

There is tension between the federal and state governments surrounding the delivery of the energy targets, which require the corporation of the state, creating another challenge over the next few years.

Why is the amount of power generated in Australia from renewable energy sources so low compared to other countries?

The power generated from renewable energy in Australia is 10.5%, which is due to the late implementation of renewable energy targets and policies to drive the deployment of renewable energy in Australia. The original target was introduced in 2000 for 9,500 GW, which was 2% of electricity generation. Since 2004 the industry has developed slowly because of the lack of growth targets.

In addition, Australia has its energy systems based around fossil fuels; the country has hundreds of years of coal and gas reserves, which has resulted in less of a focus on renewable energy.

What has been the public reaction to renewable energy targets in Australia?

The deployment of renewable energy needs to be competitive, although the average Australian household is currently paying $100 annually towards the Renewable Energy Target, which should decrease to $60 by 2020. There is evidence to demonstrate that renewable energy in the energy business is keeping wholesale energy prices lower than what they would otherwise be. South Australia gets 25% of its energy from wind and the wholesale price is $10 lower than what it could be. The retail cost of electricity has increased slightly, although this is balanced by the decreased wholesale price of energy due to wind and solar in the grid. The Bureau of Resources and Energy Economics carry out the Australian Energy Technology Assessment every two years that examines the cost of 59 different generation technologies. The 2012 review found that two out of the five lowest cost technologies to Australia were renewable energy sources, which included onshore wind. By 2030, the lowest cost electricity generation technologies in Australia will be renewable.

Is the target for 20% of power generation to be generated from renewable energy sources by 2020 achievable?

Australia has more than enough resources in the form of solar, wind and wave resources that will allow Australia to meet the target. However, the challenge is from the uncertainty regarding regulatory issues and state planning policies that are not particularly favourable to renewable energy resources in general. The federal government sets targets for renewable energy resources, although the delivery of these targets is affected by the policies that the state government control. The state governments are involved in planning regulations and the management of the grid. Australia’s three main states now have a liberal coalition government, which has a different view to the federal government with regards to global mat- 10 -

What type of investment is needed from the private sector into Australia?

There has been A$18 billion investment into the Australian renewable energy sector from large international players in the power sector. By 2030, it is expected that there will be over A$30 billion of investment made into the renewable energy sector in Australia, which will benefit the general economy. • Industry Explorations

INTERVIEW

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Michael Cummings & John Julian

frastructure assets globally, of which A$1.3 billion comprises infrastructure mezzanine debt. AMP Capital has a team of more than 60 infrastructure investment professionals located in key markets around the world. AMP Capital made its first infrastructure investment in Asia in 1994. In 1995 the AMP Capital Infrastructure Equity Fund (IEF) was established. In the same year AMP Capital commenced managing customized accounts for external infrastructure clients. Up to the mid-2000s, our client base was predominantly Australian institutions and superannuation funds, more recently we have attracted a range of international clients from Asia, Europe and North America. In 2004, AMP Capital established a European infrastructure capability headquartered in London; and the European business continues to grow.

MC: Fund Manager JJ: Senior Manager Infrastructure

AMP CAPITAL

MC

JJ

Can you give a brief overview of AMP Capital?

JJ: AMP has been established for 160 years; it is one of the largest retail superannuation providers in Australia, and two years ago it acquired AXA Asia Pacific Holdings, a large planner and superannuation provider. AMP Capital oversees the funds management side of the business for AMP, and also provides its own clients with investment expertise in Australia and globally. AMP Capital has offices in the US, Europe, Australia, New Zealand, and Asia. As well as being prominent in the infrastructure world, AMP Capital has a sizeable property business, together with Australian and Asian equity and fixed interest, and multi-asset, capabilities.

When did AMP become heavily involved in the infrastructure sector?

JJ: AMP Capital has been investing in infrastructure since 1988, and we are one of the longest-standing infrastructure managers globally. We have specialist teams focused on unlisted infrastructure equity and debt, as well as listed infrastructure securities. We manage A$6.4 billion in unlisted inIndustry Explorations

Are you looking to extend your global coverage?

JJ: Our strategy is to continue to grow our Australian and international client base. Within its infrastructure client base AMP Capital has over 40 international clients investing in AMP Capital's infrastructure capabilities. We also continue to build and deepen our infrastructure investment capability. In 2010, we opened an office in New York, responding to our clients' interest in the North American infrastructure market. In 2011, AMP Capital entered into a strategic business and capital alliance with Mitsubishi UFJ Trust and Banking Corporation (MUTB) who took a 15% stake in AMP Capital; the remaining 85% is held by AMP Group. One of the key reasons MUTB was attracted to the alliance was our infrastructure capabilities, and the opportunity of introducing Japanese pension funds to those capabilities. Also in 2011, AMP Capital participated in a competitive process to manage an infrastructure fund that was being set up in Ireland by the National Provident Reserve Fund of Ireland in conjunction with Irish Life Investment Managers. AMP Capital was successful in its tender to manage this infrastructure fund which is focused on infrastructure in Ireland. The fund’s first investment was a portfolio of wind farms in Ireland.

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What makes the IEF attractive to outside investors; and what typical return and type of risk profile does it have?

MC: IEF is a pooled fund and is attractive to small or medium-sized wholesale investors like super-funds offering an exposure to a diversified range of Australian & NZ-based unlisted core infrastructure investments. The return of the fund is benchmarked against the 10-year Australian Government Bond plus a margin, with a net return on equity of 13% over the last 2 years, and over 10% since inception 17 years ago.

Generally over the last 15 years there has been a move away from equities and fixed interest into alternatives where investors seek to invest a growing allocation of their portfolio to a risk return balance that they have become more comfortable with. Typically, we focus on brownfield, regulated (or longterm contracted) core infrastructure assets from the transport sector, (i.e.– toll roads, ports, and airports), social infrastructure (i.e. PPPs including schools, convention centers, university accommodation and aged care facilities), and energy infrastructure (i.e. transmission, distribution and long-contracted renewable generation). IEF is specifically focused on Australia and New Zealand.

AMP Capital offers a range of other infrastructure investment products that are global in nature or focused on other regions.

Will AMP Capital continue its strategy of non-involvement with power generation assets?

MC: Whilst AMP Capital’s unlisted investment focus is predominantly on regulated power transmission and distribution, the company is prepared to consider renewable energy long-term contracted investments; many of our investors are indicating a preference to invest in renewable energy versus fossil fuel because of environmental concerns and the commodity risk of fossil fuels. For example we have invested in North American wind farms recently on behalf of an Australian super fund. •

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

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Powering a Nation

ELECTRICITY GENERATION BY SOURCE Source: Australian Energy Regulator OUTPUT

CAPACITY 60

50

40

30

Australian generation and transmission 20

10

% of total

Australia, one of the richest nations in the world in terms of its natural resources, understandably relies heavily on that natural wealth when it comes to generating electricity. Around 79% of its 59.13 million kW of installed electricity generation capacity comes from fossil fuels. This primarily comes from the country’s plentiful coal reserves: Australia boasts the fourth largest proven coal reserves in the world, according to the 2013 BP Statistical Survey.

Pressure to address the issue of climate change and a desire to diversify the energy portfolio, however, has led to federal legislations explicitly designed to restructure the country’s power supply. The July 1, 2012 introduction of the Labour government’s much-debated carbon tax has signaled a new wave of enthusiasm for renewable energy projects that have previously been considered a complement to Australia’s coal-fired generation matrix. Despite attempts to repeal the tax by Tony Abbott’s Liberal government, who say it is costing the country jobs, the Labour and Greens parties have so far successfully defended it. In another move to promote renewables, the federal government has instituted a Renewable Energy Target of 20% renewable power generation by 2020, representing a 10% increase from current levels.

These developments have taken place at a time when Australia has successfully navigated the harsh waters of the global financial crisis, thanks in large part to its energy-intensive resource industries.

Australia’s GDP growth in 2012 and 2013 ranked amongst the developed world’s highest rates at 3.7% and 2.8% respectively. In another stamp of approval for Australia’s economic success, the International Monetary Fund predicted that Australia would outperform all advanced economies for at least the next two years.

The continued growth of Australia’s economy is largely contingent upon the availability of cheap, reliable power, which currently equates to coal and gas. While publicly there is excitement surrounding the development of renewables, industry proponents themselves acknowledge that wind, solar and biomass are in the early stages of commercialization. For now, coal remains king.

Coal-fired power stations have been the reason for Australia’s successful economic growth in every state, according to Peter Jackson, the managing director of now defunct Eraring Energy, a state-owned utility in New South Wales that operated the 2,880-MW Eraring coal-fired power station.

Coal-fired power stations have been the

ENERGY DEMAND BY REGION Source: Australian Energy Regulator QUEENSLAND

NEW SOUTH WALES

VICTORIA

SOUTH AUSTRALIA

TASMANIA

SNOWY

250

200

150

100

50

TWatt hours

1999 2000

2000 2001

2001 2002

2002 2003

2003 2004

2004 2005

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

2005 2006

2006 2007

2007 2008

2008 2009

2009 2010

- 12 -

2010 2011

2011 2012

2012 2013

Black coal

“

Brown coal

Gas

Hydro

Wind

Liquid

Other

When the Renewable Energy Target (RET) was introduced in 2001, it invigorated our business at Pacific Hydro.

Prior to that, few renewable opportunities existed in Australia, and the RET scheme promoted new renewable technologies such as wind throughout the sector. When the original RET was met ahead of schedule, clean energy stagnated; nonetheless, the industry delivered and the policy goals were somewhat achieved. For Pacific Hydro, the framework has been a success: our entire wind portfolio was built under the RET. - Lane Crockett, General Manager, Australia, Pacific Hydro

”

reason for Australia’s successful economic growth in every state, according to Peter Jackson, the managing director of now defunct Eraring Energy, a state-owned utility in New South Wales that operated the 2,880-MW Eraring coal-fired power station.

“Consumers are increasingly aware of electricity pricing, having increased substantially over the last few years. This price increase is due to distribution costs, while generation costs are exactly the same today as it was five years ago: in real terms, costs have reduced due to increased efficiencies in coal-fired power stations,” he said.

David Pryke, executive vice-president, Energy at Siemens Australia, estimates it is unlikely there will be a new fossil plant in coming years, which he attributes to a fall in demand. “There has been a lower energy demand in the manufacturing industry because of closures apportioned to the Industry Explorations

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high value of the Australian dollar. The public has become cost-conscious and more frugal with electricity use,” he said.

Household electricity bills have risen almost 50% over the past three years. The Australian Energy Market Operator, who oversees the retail market, overestimated peak demand in every Australian state and was forced to revise its projections. These original estimates caused utilities to funnel capital expenditures into the upgrading of the electricity networks, which led to higher prices as they seek to recoup their investments.

TransGrid, the state-owned transmission company in New South Wales, implemented a number of projects designed to upgrade the network capability, despite ongoing political debate about so-called “gold plating,” where continued investment into networks has been questioned as excessive. “Gold plating is a term that has unfortunately taken off in the political domain for the purpose of media attention,” said Peter McIntyre, TransGrid’s managing director.

“As one of the southern hemisphere’s biggest economic hubs, Sydney needs a reli-

“

The current progress of renewable energy in Australia has mirrored that of Europe’s.

There is a boom and bust cycle in the industry. In Australia, state governments are reducing subsidies for small-scale renewable energy projects, namely solar photovoltaics, in response to public opinion that declares the impact of such schemes too high on electricity prices and the format of subsidies unfair, as lowincome households effectively subsidize wealthier households who arguably can afford solar PV. The leveled cost of solar PV is approaching grid parity anyway, which further questions the need to subsidies.

- Gilles Walgenwitz, Group General Manager, Government and Utilities, Energetics Proprietary Ltd able network. Transmission failures, while considerably rare, can have catastrophic consequences. When systems deteriorate to the point of failing consistently, the time to recover can be measured in years. Our job is to meet customer’s reliability expectations at minimal capital expense. TransGrid aims to spend its available funds wisely and prudently by identifying the latest possible point we can invest in augmenting the network. Our board has deferred almost A$1 billion of projects in the last 12 months. However, much of our

”

grid was built in the 1960s and 1970s, and networks on average have about 50-year lifespans. It is appropriate that we have an ongoing program to replace it.”

In 2013, the company instituted a price freeze for the year, in response to the rising electricity costs. “TransGrid is sensitive to the debate around rising power prices and wants to be part of the solution. We are very conscious that our revenues fluctuate, although for good reasons. As you build more capital, greater funds are required; and the cost of capital also varies.

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Industry Explorations

- 13 -

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Peter McIntyre

Managing Director

TRANSGRID

Can you give us a brief introduction to TransGrid?

TransGrid’s role is twofold. First, to provide safe, efficient and reliable transmission services to more than three million households in New South Wales and the Australian Capital Territory, and secondly to facilitate the operation of the National Electricity Market. Sitting between Queensland and Victoria, New South Wales has one of the largest interconnected AC transmission networks in the world. A high concentration of the national load is situated in our state, around Sydney, Newcastle and Wollongong; on high days, we receive about a third of the national demand. All the work we do on our network affects the capacity of generators to dispatch their energy, as well as the prices end consumers pay.

TransGrid has many projects to complete by 2014. What are some of the near-term goals?

One of TransGrid’s goals is to complete all our projects on time and budget; a related objective is to minimise the amount of projects we do and defer as much capital as possible. In 2009 we AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

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undertook the Western 500 kV development, and we are in the final throes of the A$569 million Western Sydney Supply Project. It has involved building two large indoor substations, laying one 330 kV cable and upgrading an existing 132kV transmission line to operate at 330kV,The project has been challenging but our team has been meeting those challenges and excelling in the process.

Australia’s renewable energy target has now been solidified. As a large proportion of renewable projects are located in South Australia and Victoria, what does this mean for TransGrid?

South Australia and Victoria are building projects because they have very good wind resources, but the Australian Energy Market Operator is forecasting increased wind development in New South Wales in the coming years. This state has a very robust transmission network, coupled with good wind resources and proximity to the biggest load on the national market. There are a number of locations where our network runs close to potential wind spots, and TransGrid is currently negotiating with various proponents who want to develop wind farms. We recently connected one near Canberra, producing about 140 MW. TransGrid instituted a price freeze in 2013. How will you recoup these losses?

TransGrid is sensitive to the debate around rising power prices and wants to be part of the solution. We are very conscious that our revenues fluctuate, although for good reasons. As you build more capital, greater funds are required; and the cost of capital also varies. However, these fluctuations are not good news for end users, who receive them as power prices. These prices have risen in recent years due to a combination of factors: networks’ liability standards, ageing infrastructure, rising capital costs in international markets, increasing gas prices and the introduction of a carbon price scheme. Our solution was to freeze our prices in 2013 and then smooth them over the following years.

TransGrid had to operate at a slightly higher level of debt in 2013, which does - 14 -

have a potential impact on the business, yet we felt this was more than offset by addressing consumer concerns.

There are frequent complaints about over-investment in the networks.

What is your counterargument?

The New South Wales network is built to perform consistently with first world power systems, which it does. This is important: it underpins Australian economic growth.. As one of the Southern Hemisphere’s biggest economic hubs, Sydney needs a reliable network. People often confuse transmission with distribution. Distribution may affect a few houses here and there; transmission failures, while considerably more rare, can have catastrophic consequences.

When systems deteriorate to the point of failing consistently, the time to recover can be measured in years.

Our job is to meet customer’s reliability expectations at minimal capital expense. TransGrid aims to spend its available funds wisely and prudently by identifying the latest possible point we can invest in augmenting the network.

Our Board has deferred almost A$1 billion of projects in the past 12 months.

However, much of our grid was built in the 1960s and 1970s, and networks on average have about 50-year lifespans. It is appropriate that we have an ongoing program to replace it.

What is TransGrid’s medium-term vision?

TransGrid will continue to produce steady, solid profits and performing very reliably and safely, while minimising our environmental impact. We are committed to and have put in place a more robust consultative process with communities and stronger engagement with our stakeholders but there is always room for improvement in the way we engage with the broader community on relevant issues, such as the price/ service tradeoff. TransGrid has already implemented the two largest demand management programs in Australia, and we are now educating the market so that it knows the initiatives available. •

Industry Explorations

Global Business Reports

“

Key themes currently include the potential increase in market share of renewable energy in a fairly low growth medium term outlook; the impact of LNG export on the domestic gas and electricity prices, the recent introduction of the “carbon tax”; and the recent significant investment in the T&D sector.

All of the above have been blamed as part of the root cause of the substantial increase in power prices here in the last five years. As a country, Australia is combating low productivity gains; arguably, investment in technology such as smart meters will help drive productivity and increase demand-side management opportunities.

- Michael Cummings, Fund Manager, AMP Capital

”

13

However, these fluctuations are not good news for end users, who receive them as power prices. These prices have risen in recent years due to a combination of factors: networks’ liability standards, ageing infrastructure, rising capital costs in international markets, increasing gas prices and the introduction of a carbon price scheme.

Our solution is to freeze our prices in 2013 and then smooth them over the following years,” said Peter McIntyre.

One way that utilities can combat the rising costs of electricity passed along to the consumer is through the use of smart grid technologies. Energy management technologies have applications in both the high- and lower-ends of the energy market in Australia, said Andrew Halliday, sales and support manager of Australia and New Zealand of PowerSense, a Denmark-based smart grid company who have targeted Australia as a growth region. “Smart grid is moving forward on two fronts: high-end functionality where sophisticated technology is required to measure power quality; and an increased focus on low-end technologies, such as transformer loads,” he said. PowerSense’s Australian operations currently contribute 40% of the company’s global revenues.

The Australian government is employing a number of state-based programs to advance the deployment of energy management systems. The state of Victoria, in southern Australia, mandated that smart Industry Explorations

meters be installed in all Victorian households and small businesses by the end of 2013.

Despite the Victorian government’s support of a smart grid rollout, some companies still feel that the industry needs better regulation in this area nationally. Oliver Iltisberger, executive vice-president, Asia Pacific at Landis+Gyr, an international smart metering company, explained: “The industry needs a clear regulatory framework for the rollout of smart metering or smart grid technology in the other Australian states.

Until this regulatory framework is in place, it will be difficult to secure investment to move smart grid projects forward.”

A clear regulatory framework is also essential because, according to Michael Cummings, fund manager of the Infrastructure Fund at AMP Capital, Australia as a country is combating low productivity gains. “Arguably, investment in technology such as smart meters will help drive productivity,” he said.

According to Michael Rath, National Leader of Energy and Water at Deloitte, the customer will be one of the biggest catalysts for driving change in the power sector: “The industry is going through a tremendous amount of change. Nowhere is this more apparent than in the technology area: we are moving to a digital-based industry.

This will impact the way networks are designed and how customers interact with their energy providers.”

For the foreseeable future, demand management technologies and infrastructure upgrades are the answer to the question of how to provide energy for Australia’s still-growing economy. “There should be no additional baseload requirement before 2020, as energy consumption has fallen largely as a result of the slowing in GDP growth, a reduction in demand from the manufacturing sector, noticeable price elasticity in the residential sector, and the success of federal and state energy efficiency schemes,” explained Gilles Walgenwitz, general manager of government and utilities at Energetics, an energy management consultancy with offices across Australia.

The country is entering a new phase of energy management: one that focuses on the effective delivery of energy to its population rather than continuous supply, and it is up to regulators and industry alike to ensure a smooth transition. • - 15 -

Western Sydney Supply Project Securing power supply to the Sydney CBD and greater Sydney area THE PROJECT INCLUDES: • Construction of the new Holroyd Substation at Greystanes • An upgrade to the existing overhead transmission line between Sydney West Substation at Eastern Creek and the new Holroyd Substation • Construction of the new Rookwood Road Substation at Potts Hill • Construction of a new underground electricity cable between the two new substations.

Diverse range of innovative design solutions A benchmark in Australian engineering CONTACT US 180 Thomas Street, Sydney NSW 2000, Australia Tel (02) 9284 3000 Fax (02) 9284 3456

INTERVIEW

Andrew Halliday

Sales and Support Manager ANZ

POWERSENSE

PowerSense has identified Australia and New Zealand as one of the company’s key global markets. What is the significance of the region to PowerSense?

In 2008 PowerSense began working on a project with Ausgrid, which is a leading utility company in the Smart Grid space.

Ausgrid was attracted by PowerSense's technologies; these were demonstrated and piloted to Ausgrid. After winning a tendering process PowerSense deployed its Smart Grid technology, arguably the largest deployment of such technology globally.

Ausgrid was attracted by PowerSense's Smart Grid technology, and recognized the need for wide-scale visualization on the distribution network. PowerSense's solution had a strong fit with Ausgrid's requirements; the 2008 framework agreement with Ausgrid for the widescale deployment of Smart Grid was PowerSense's pathway into Australia. We have since made several pilot schemes for our Smart Grid product with other utilities in NSW and Victoria; utility companies in New Zealand have also expressed interest in our technology. Currently, Australia's operations contribute 25% of AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

PowerSense's total revenue; our other main market is Europe and new business is being generated in North and South America.

What are some of the main objectives for PowerSense in Australia over the coming months?

PowerSense is progressing the deployment and monitoring the affects of its Smart Grid technology with Ausgrid. We are also carrying out a pilot project with New South Wales utility company Essential Energy, and have completed pilot projects with Endeavour Energy and ActewAGL. PowerSense is seeking to expand its Australian operations during 2014 by developing opportunities in Victoria, starting with a trial at Powercor. New Zealand has also been an active market for us working with large utility companies such as Vector Limited, Unison, and Powerco. PowerSense plans to establish a self-sufficient team in Australia; currently, this would not include production. As the utilities deploy our technology it would be prudent to have a self-sufficient team, and also look at the market potential of South East Asia.

What makes PowerSense's DISCOS® solution unique in the Australian marketplace?

The most important element of the DISCOS® technology is the retrofit component, the most advanced retrofit technology in the marketplace. It allows the visualization technology to be utilized on the network without having to replace components, making the DISCOS® technology a cost-effective solution. The business benefit comes to fruition with the ability to identify through DISCOS'® visualization where utility companies should focus their spending, where they have capacity and can accommodate a restructuring of their network. The backbone of our unique technology is the optical sensor that we have developed which measures current; it is easy to retrofit and is non-conductive.

In light of Australia’s push towards Smart Grid technologies, how competitive has the sector become?

The market sector has become more competitive over the last two years; initially, PowerSense had the market to - 16 -

itself. PowerSense focuses on retrofit technology, whereas some of our competitors are more engaged in switchgear technology. There are direct competitors infiltrating the retrofit business, but they are behind us on proven field utilization of their retrofit product; PowerSense was the first to introduce retrofit to the market. It is our goal to stay ahead of the competition by maintaining the unique qualities of our technology.

What will your retrofitting technology mean to the implementation of renewable energy in Australia?

Our expertise permeates from two sources: our parent company, Dong Energy, and its R&D group. In 2004, pilot schemes using Dong Energy's technology were deployed in the Nordic region where expertise in the renewable space is more advanced. This knowledge will serve us well in the renewable energy market of Australia.

How big is the potential market in Australia for PowerSense’s technology?

Arguably, within the foreseeable future all utilities throughout the world will have visualization on their network; PowerSense's goal is to capture a large proportion of that market. It is perceived that the visualization hardware in the Australian market will achieve AU$200 million. Our current market share is high; if Ausgrid's contract, plus smaller projects are included, we have 90% market share.

There is still a large share of the market, nearly three-quarters, which is untapped potential.

Where is the market for Smart Grid headed in Australia, and how will PowerSense evolve within this framework?

Smart Grid is moving forward on two fronts: high-end functionality where sophisticated technology is required to measure power quality; and an increased focus on low-end technologies, such as transformer loads. The market is still emerging; our product is modular and we are able to work in both spaces. In five years' time we aim to be the number one retrofit company globally, have a small self-contained team in Australia, and established a presence in the Asian market. • Industry Explorations

INTERVIEW

Global Business Reports

Oliver Iltisberger

Executive Vice President Asia Pacific

LANDIS+GYR

What is the importance of the Australian market to Landis+Gyr in the context of its global operations?

Landis+Gyr has been operating in Australia for over 70 years and Australia is a very significant market for the overall group. We have global presence with operations in 32 countries. The Australian market is very advanced in terms of the rollout of smart metering in the state of Victoria. Currently, the other smart metering rollouts are in North America and Europe. The company’s turnover is about $180 million in Australia and New Zealand, which represents over 11% of the overall Group revenue. Landis+Gyr has approximately 350 employees working in Australia and New Zealand.

Its Australasian head office is in Sydney which also houses its R&D and ISO 9001 accredited manufacturing facility for smart metering technology. In addition, we have offices in Melbourne (including a manufacturing facility for gas metering technology), Perth, Brisbane and Auckland (New Zealand).

What further market potential does Landis+Gyr see in Australia?

The Australian market is very exciting; Industry Explorations

the implementation of the entire smart metering rollout program in Victoria is very advanced in terms of functionality and benefits (starting to demonstrate now). Landis+Gyr hopes that the smart metering technology is deployed throughout Australia, to accelerate the value of smart grid; and its benefits to its economy and Australian consumers.

What knowledge have you accrued from the Australian market that can be utilized in the developing Asian market?

Our smart metering technology that we have developed at our R&D center in Sydney enables us to leverage this competence in competitive markets such as India and China, and parts of Southeast Asia. It is difficult to compete on price with local Asian companies. However our practical experiences from Australia and our recognised global technical expertise in smart metering technology gives us an advantage over our competitors. Landis+Gyr will continue to partner with leading utilities in the Asian market to develop smart metering specifications to meet their specific needs.

What R&D initiatives are you planning over the next few years in Australia?

In the last couple of years, Landis+Gyr has predominantly worked on the smart metering technology for the Australian market, including the development of modular smart meters; communication platform such as WiMAX technology; and home area network with ZigBee standards. Looking forward, Landis+Gyr is continuously enhancing its portfolio in readiness for the deployment of smart metering technology across Australia. This will require alignment with the recently endorsed national specification; extending our communications portfolio (for example cellular or LTE); leverage our software systems (such as meter data management systems); and focused enhancements based on international developments by leveraging our North America and EMEA technology portfolio..

public. Do you feel that industry has done enough to educate the public on the benefits of smart metering?

All stakeholders in the industry need to better educate the public on the benefits of smart metering. There have been countries that have rolled out smart metering that have readily been accepted due to the rollout being well structured from a promotion and education viewpoint. There is a correlation between the acceptance and a well-structured rollout. Victoria is a good example where insufficient stakeholder involvement in the initial days of smart metering rollout was the reason why the program ran into trouble. The current Victorian government turned around the perception of smart meters and improved significantly certain elements of the program, making benefits more visible; and as a result, public perception in Victoria has improved. Before moving forward, industry needs a clear regulatory framework for the rollout of smart metering or smart grid technology in the other Australian states. Until this regulatory framework is in place, it will be difficult to secure investment to move smart grid projects forward.

What are Landis+Gyr's strategic objectives in Australia over the next 12 to 24 months?

Landis+Gyr’s objectives include introducing our smart metering and smart grid technology across Australia. Together with Toshiba we also recognize the huge potential for new technologies such as micro generation systems, storage solutions, street lighting, and distribution automation. We have just introduced our portfolio for in-home personal energy management solution, which is a very important tool for consumers with energy management, to complement our smart metering technology.

With changes in Australia resulting from Power of Choice recommendation we see an opportunities opening up in the Energy Services market. •

A recent report found there was a lack of understanding surrounding smart metering amongst the general - 17 -

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

David Pryke

Executive Vice President Energy

SIEMENS

What is unique about the Australian power sector in the context of Siemens’s global operations?

The Australian power sector is heavily reliant on fossil fuel; 85% electricity is generated from fossil fuel, 75% of which is from coal. Australia has a small population in large population centers over a huge geographic mass, with an elongated weak transmission system resulting in the grid becoming easily constrained. When the system becomes constrained, for example, during extreme hot weather, peaking gas turbine plant comes into operation; arguably, this would only occur up to 10 days a year. In comparison to other countries, Australia has an abundance of energy resources: uranium, coal, gas, wind, solar, hydro, and tidal all offer options for the future.

In what way has the move from fossil fuels to renewable energy in Australia affected Siemens’s project pipeline?

The big impact on Siemens’s project pipeline is that since 2008 no fossil fuel plant has been ordered in Australia; it is unlikely there will be a fossil plant ordered in the medium term. This is being driven by a fall in energy demand of AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

6% in the last 4 years: there has been a lower energy demand in the manufacturing industry because of closures apportioned to the high value of the Australian dollar; relatively mild weather over the last few years; electricity prices have dramatically increased and the public has become cost-conscious and more frugal with electricity use; and rooftop solar has had a significant impact on the fossil market. It is anticipated there will be up to 8,000MW of wind energy installed by 2020. In Australia, wind and energy efficiency will make an important contribution to the 5% CO2 reduction target by 2020. In other parts of our business, in the short term the transmission and distribution business has slowed, although further investment by the network will be required. Off-grid resource sector projects will require the building of industrial-sized power plants to accommodate these projects.

its energy sector operates across the large-scale fossil market, which is currently flat, but it is supported by a robust wind energy business. We also have considerable industrial power generation activities: we are currently involved in the Diamantina industrial power station; and Yarnima power station in Newman, Western Australia which is supplying BHP Billiton's iron ore mine. Siemens is confident that the resource off-grid market sector will continue to show growth, particularly in the LNG and Iron Ore markets. We see our transmission and distribution business sector picking up in the medium-term and we are confident that there will be further investment in this sector. Siemens also has strong energy efficiency and building technology capabilities, and foresees a number of opportunities in these fields; it also has a large service business that is showing significant growth.

How has Siemens wind turbine technology used at Snowtown II helped to increase efficiencies?

In general, the focus of wind farm manufacturers is to increase the size of wind turbines; an increase in size does not proportionately increase the cost but does increase the yield resulting in a lower dollar/MWh cost. Historically, the majority of maintenance costs on wind turbines has been the gear box where more than 50% of the moving components of a wind turbine are located; Siemens has developed technology to eliminate the gear box, introducing new gearless wind turbines which reduce maintenance and operational costs.

Going forward, what are the key areas of growth for Siemens in Australia?

Siemens has been in Australia for over 140 years, and with its technologies and innovations is able to adapt to change. Within four years of entering the wind-energy market, we have developed from 83 meter blades in our first project through to 113 meter blades on our latest project. Siemens' financial strength continues to give the company the capability to innovate and invest in R&D. Siemens has a very strong portfolio or gas and steam turbines and leads the wind sector with its innovative 3 MW direct drive turbine. In the medium term Siemens is confident that it will continue to be active in all of Australia’s Energy markets. •

What is the outlook for new grid-connected gas projects for Siemens?

It was envisaged that there would be growth potential for both wind and fossil fuel projects; however, due to reduction in energy demand, it is anticipated that there will be no new grid-connected large-scale fossil plant in the medium term. Any additional generation will be supplied by wind power.

What capabilities does the Siemens Energy Sector require to address this new energy framework?

Siemens relies on diversification to accommodate the new energy framework; - 18 -

Industry Explorations

INTERVIEW

Global Business Reports

Suraj Narayan

General Manager Power Plants

WÄRTSILÄ AUSTRALIA

Can you give us a brief overview of Wärtsilä’s power operations in Australia?

Wärtsilä have been in Australia for over 175 years; our business is composed of three sectors. We have power Power Pplants for land-based power solutions, Sship Power plants to take care of our marine customers, and a Sservices business to support our customers through the life cycle of the equipment. In Within Australia, most of the employees belong to the Services businesswe are primarily a service company. Additionally, we cover other countries in the region, such as New Zealand, Fiji, Papua New Guinea, and some of the smaller islands. We do some interesting one-off projects in Fiji and Papua New Guinea, but the geography is so spread out that we do not do any active marketing there; we have strategic partners in those places to keep an eye on the market and let us know when a project comes up.

What is happening on the utilities side of your business in Australia?

The utilityies side of the business is a bit slow today. As there is excess capacity in the market, people will not be talking about any large base load plants for many years.

Industry Explorations

What has happened is the demand has dropped off, partly due to the economy.

The macroeconomic situation has led to uncertainty in the market, where people are afraid to make decisions because of factors like carbon tax, gas supply etc. On the eastern coast of Australia, there is a demand for gas from local industry, but gas producers can make a larger profit by converting it to LNG and exporting it, so there is not cheap fuel available domestically. If the cost of fuel is high, then it does not make sense to build more base-load generators that may not be utilized because there is already excess capacity in the market today.

Does this uncertainty mean that the country will become less of a strategic center for the company as you move forward?

In a way, the uncertainty is actually good for our business. Traditionally, these utilities buildy large plants ots— 500 MW to 1,000 MW — and that means a very big investment, which is not so attractive when you are unsure of what utilization you will actually see. Looking at wind, it is a good source of power generation, but the challenge is in that it is does not have dependable capacity. When it does blow, you get extra power, but there is no guarantee it will be blowing at the same time as high power demand. What this means is that you need to be able to balance this high power demand when there is low wind, and that is where Wärtsilä has solutions.

We do not work in large base-load power stations, but more in the intermediate space. Depending on wind or solar availability, utilities people can have assets that are very agile and flexible, that can be dispatched quickly. In this way, our size and power capability fits the space really well.

How are Wärtsilä’s solutions placed to integrate themselves into these renewable projects?

Wärtsilä engines offer high flexibility. Y, so you do not need to put them together with a wind farm. You can put the wind farm in a more remote place where wind conditions are good and locate Wartsila engine based power plant it makes sense and have the load closer to load centres.the town and consumers. Our engines havea fast response capability, which is critical for balancing when power output from wind or - 19 -

solar changes rapidlyis not available.

What sort of input is the company putting into new technologies?

Our high efficiency is one of the real values we bring to the market, so there is a constant effort to improve the efficiency and capacity of our units. We also have advantages from being in that intermediate space. If you have two large units and have to run them both at part-load, you are losing a lot of efficiency; however, if you have a number of our smaller units, you can run only the ones you really need, and run them close to full-capacity, maximizing efficiency. If you have three large units and one goes down, then you just lost 33% of your capacity, whereas if you have a plant with 15 small machines and you lose one, then you still have 14 machines. Furthermore, in this uncertain market where people are afraid to make large investments, investing in a smaller plant becomes a lot more attractive.

What are some of the challenges you encounter here in Australia?

It is a developed market, but the real challenge is in the mindset. These are significant investments we are talking about, so people prefer to do things the way they have done them in the past; they prefer do not to want to take a different approach due to perceived risksget fired for doing something different. The financial people and top management can understand our value proposition better, looking at the quantifiable numbers, but it is the technical guys who vet the process and make the decision, and they would rather go with what they have done for the last 20 or 30 years than stepping out of the comfort zonetake the risk.

Where do you see Wärtsilä’s power operations heading in the future?

Gas has a real growing potential for Wärtsilä, and we are already strong in gas engines, so that is where our focus will be.While carbon prices are low at the moment, in the future that gas-based generation will come i Wind and solar will also come in, which will pose challenges for the existing systems. Wärtsilä will be there to complement the renewable generation; we can help enable the transition to a more modern and sustainable power system with our solutions. • AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Sparing the Mine and Spoiling the Miner: Western Australia’s Mining Industry

“‘Boom’ is not an accurate term to use in the mining industry; we prefer to focus on sustained economic growth.

We are currently in a transition from construction to operations where the large investments of recent years are beginning to translate into production, increasing the sales volumes in our bulk commodities and dynamically contributing towards the economic growth and sustainable development of the state.

We do have challenges in Western Australia, but the sector is changing, not ending.

- Reg Howard-Smith, Chief Executive, Chamber of Minerals and Energy of Western Australia (CME) Image: Toro Energy Ltd

EDITORIAL

Global Business Reports

An Introduction to Western Australia Derby Broome

A brief overview of the state and economy Port Hedland

Learmonth

WESTERN AUSTRALIA AT A GLANCE Australian Bureau of Statistics

If Australia is known as “the lucky country,” then Western Australia could be considered the luckiest of its five states and two territories. The nickname, coined by Australian professor Donald Horne in the 1960s, was largely inspired by the abundance of natural resources that punctuate the country’s landscape. Western Australia is a vast area that covers nearly one-third of Australia’s total surface and is home to some of the world’s largest iron ore deposits, as well as over 50 other metals and minerals. Queensland may have coal, Victoria may have gold, but Western Australia has a culture and history deeply rooted in mining and resources, which it has used to its benefit.

Western Australia can claim impressive economic credentials. In 2012/2013 it claimed the second-highest gross state product (GSP) growth after the Northern Territory, at 5.1% (NT showed growth of 5.6%): driven by the mining sector, which contributed 3.6%. In the period between 2001/2002 and 2012/2013 it boasts the highest average annual GSP growth, at 4.9%: substantially higher than the next highest, NT, at 4.1%. Unemployment is AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

WESTERN AUSTRALIA

Carnarvon

Population: 2,517,200 (December 2013 estimate) Capital: Perth Head of Government: Colin Barnett (Liberal) GSP: A$252.999 billion (2013 estimate) Growth Rate: 5.1% (2013 estimate) GSP per Capita: A$102,232 (2013 estimate) Exports: A$122.705 billion (2013 estimate): iron ore, gold, natural gas, crude petroleum, wheat Imports: A$43.550 billion (2013 estimate): crude petroleum, refined petroleum, passenger motor vehicles Major Trade Partners: China, Japan, Singapore, United States

Geraldton Kalgoorlie

Perth

Rockingham Mandurah Bunbury

below the Australian average and GDP per capita is above the Australian average.

Mining and resources have always been the backbone of Western Australia’s economy. In 2012/2013, the value of the state’s mineral and petroleum sector was A$101.8 billion, which is the second-highest total in history, behind the record A$108 billion in 2011 according to the Department of Mines and Petroleum.

Western Australia and the national economy continue to benefit from the growth in the resources sector. Confidence has returned to the market on the back of solid price rises in iron ore. As of September 2013, committed capital expenditure on major projects in Western Australia increased by 8.1% to A$146 billion from the $135 billion at the end of April 2012.

A further A$97 had been identified for planned and possible projects.

West Australian resources companies total market capitalization at the end of November 2012 stood at A$86 billion, an increase of 2.1% from the end of August 2012. This growth has strengthened post-election, with strong results posted by majors BHP Billiton, Fortescue Metals - 22 -

Group and Rio Tinto. This looks to translate into strong, stable growth in the coming period. BIS Shrapnel, a market forecasting service, has forecast mineral production in Australia to increase by 41% over the next five years: a far cry from the dim results predicted in the first half of 2013.

However, Western Australia’s mining industry must now solve a series of structural problems, the answers to which will define the face of the industry moving forward. Western Australia has grown fat off its “luck,” but the rise of the Pilbara and the country’s oil and gas industry have come at a cost. Mines and their ore bodies have been spared: their miners, spoiled. Mine productivity has hit a historic low as wage rates have hit a historic high. Compounded with a downturn in global commodity prices, this dynamic has led some to question the economics of West Australian mining. Yet West Australian mining remains viable. From the beating which global commodity markets have inflicted on the industry, a better industry is now emerging: innovative and lean. • Industry Explorations

FACTSHEET

Global Business Reports

TOTAL WA COMMODITIES BY VALUE

MINING INVESTMENT

Source: Western Australia Department of Mines and Petroleum

Source: Western Australia Department of Mines and Petroleum

2012-2013

2012-2012

WESTERN AUSTRALIA

TOTAL ALL COMMODITIES

REST OF AUSTRALIA

100,000

IRON ORE

80,000

LNG

60,000

CRUDE OIL & CONDENSATE GOLD

40,000

ALUMINA

20,000

NICKEL $ million

NATURAL GAS & LPG

2003 2004

2004 2005

2005 2006

2006 2007

2007 2008

2008 2009

2009 2010

2010 2011

2011 2012

2012 2013

BASE METALS

INVESTMENT IN MAJOR PROJECTS (AS OF SEPTEMBER 2013)

HEAVY MINERAL SANDS COAL

Source: Western Australia Department of Mines and Petroleum

$ 10,000 millions

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

CAPEX MILLION DOLLARS

MAJOR PROJECTS

COMITTED/ UNDER CONSTRUCTION

WA MINING EMPLOYMENT

PLANNED/ POSSIBLE

Commodity

Source: Western Australia Department of Mines and Petroleum

Gold

NUMBER OF EMPLOYEES 120,000

100,000

20

3,303

Iron Ore Nickel Other Minerals and Infrastructure

15,680 197

23,208

7,838

3,497 16,997

Sub-Total

23,735

47,005

80,000

60,000

MINERAL TENEMENTS IN FORCE Source: Western Australia Department of Mines and Petroleum

40,000

NUMBER 1996 1997

1998 1999

2000 2001

2002 2003

2004 2005

2005 2006

2006 2007

2008 2009

2010 2011

2012 2013

WA COMMODITY EXPORTS

WA MINING EMPLOYMENT BY MINERAL

Source: Western Australia Department of Mines and Petroleum

Source: Western Australia Department of Mines and Petroleum

000 HA

2011-2012: Prospecting Licences

7,265

910

Exploration Licences

6,969

60,396

Mining Leases Other Mineral Claims & Other 1904 Act

5,897

2,285 5,323

3,157 186

21 68,935

23,474

Total 2012-2013: Prospecting Licences

6,834

851

Exploration Licences

6,503

52,895

Mining Leases Other

6,195

2,451

3,377

5,486

186

21 61,704

Mineral Claims & Other 1904 Act

23,095

Total

MINERAL EXPLORATION EXPENDITURE Source: Western Australia Department of Mines and Petroleum WESTERN AUSTRALIA

Petroleum Heavy Mineral Sands Iron Ore Diamonds Nickel Base Metals Alumina Gold Other

Industry Explorations

21% 1% 54% 0.3% 4% 2% 3% 14% 3%

Iron Ore Alumina Gold Nickel Heavy Mineral Sands Other

47% 7% 22% 8% 2% 14%

3000

2000

1000

$ million

- 23 -

REST OF AUSTRALIA

4000

2003 2004

2004 2005

2005 2006

2006 2007

2007 2008

2008 2009

2009 2010

2010 2011

2011 2012

2012 2013

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

The Hon. Bill Marmion Minister of Mines and Petroleum

DEPARTMENT OF MINES AND PETROLEUM WESTERN AUSTRALIA

The Liberal Government of Western Australia has been commended on its mining agenda. What are some of your key near-term priorities?

One of the key initiatives our government has put in place is streamlining the approvals process. We would like to implement an online tracking system across all of the departments, similar to what is already in place within the Department of Mines and Petroleum. Having an online system will alleviate any miscommunications across departments that slow down the approvals process. The Liberal government has allocated funds in order to achieve this goal. Another initiative is to capture and store environmental information into a database similar to what we already possess for the mineralogy of the region, so that a mining company can access historical environmental information.

These two initiatives will help to make the approvals process smoother, and also highlight whether there is a bottleneck.

What is the state doing to address the increasing cost of doing business in Western Australia?

There is a range of initiatives that the state government is trying to enact in orAUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

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der to reduce the cost of labor in Western Australia, but it must be done with the cooperation of the federal government. We need skilled labor in Western Australia, which is dependent on the accessibility of Section 457 visas that allow temporary skilled workers to immigrate to Australia.

The problem, however, is not so severe in the eastern states. Unfortunately Western Australia only has three members of parliament represented federally, so there is not a strong incentive to really address this issue. In the state, the Minister for Training and Education is trying to promote trades in order to meet the demands of the resources industry. We are going through a period of expansion in the iron ore industry, as well as LNG projects coming onstream; as the demand for labor eases over the next few years, we hope to see a softening of labor pressures and associated costs.

We have seen a troubling trend of declining exploration expenditure in Australia. How well can state incentives such as the Exploration Incentive Scheme address this issue?

It is extremely important for the government to offer exploration incentives to companies, because without exploration there will be no mines. The Liberal government will continue with the A$100 million Exploration Incentive Scheme, which currently goes through 2015; however, we are very keen for the scheme to continue.

Data shows that there is a genuine multiplier effect with such schemes in place, so this is a worthy investment in Western Australia. Hopefully the Exploration Incentive Scheme will help to increase Western Australia’s competitiveness in what is a very global mining industry; recent data suggested that nearly 75% of companies exploring in Africa are Perth-based.

hopefully open the path to other minerals becoming more prevalent in Western Australia. We have extensive data on every type of mineral in the state, and will be very supportive of any company exploring and developing. We are seeing lots of magnetite iron ore development of the highest quality as well. While we are making efforts to diversify our commodity base, we also pride ourselves on the level of expertise that companies in Western Australia have developed over decades of mining iron ore, from the technology to the infrastructure and logistics.

What is your longer-term vision for Western Australia’s mining industry?

Western Australia has such a large landmass, most of which is still unexplored.

Every week there seems to be new mineral discoveries. There is still so much more to discover in the state, especially with the current technology available, vast amounts of historical data and exploration grants. Deposits that were never considered viable in the past all of a sudden are economic due to new mining techniques and methods of extraction. Western Australia’s entire economy has always been based around mining and the state has developed a strong mining culture as a result. While there are more environmental constraints on mining and exploration, the industry is exceptional at meeting these conditions and succeeding as a result.

Western Australia is still a great place to explore and there is a lot of geological data available for companies. One only needs to see the success of the major companies operating in the region in order to understand how much potential exists in the state. Western Australia will continue to be a good place to do business, and Perth will always be a hub of mining activity around the world. •

How is the government working to diversify Western Australia’s mineral production?

Western Australia is one of the biggest iron ore producers in the world, but we also possess vast nickel, copper, gold and bauxite deposits, as well as mineral sands, rare earths and even garnets. The Ministry of Environment has recently approved the first new uranium mine in Western Australia, which is very good news for the state’s economy; this will - 24 -

Industry Explorations

INTERVIEW

Global Business Reports

Simon Bennison

CEO

ASSOCIATION OF MINERALS AND EXPLORATION COMPANIES (AMEC)

AMEC celebrated its thirtieth birthday in 2011. What have been some of the key issues on your agenda since taking over as CEO four years ago?

Unfortunately some of the key issues have not changed in my four years as CEO of AMEC. The escalation of production costs is probably the key matter.

Most of our policy is directed toward improving the industry’s cost structure; this involves federal and local tax reform, and ways to improve financing for exploration such as mineral exploration tax credits.

Part of our problem has been trying to make politicians, at state and federal level, aware that Australia’s defined resources are running out. We need a strategy which will enable exploration companies to thrive. Brownfields exploration has increased dramatically in recent years at the expense of green-fields, a trend we need to reverse.

Australia’s declining trend in exploration expenditure is not matched in other countries. What is the reason for the difference?

Costs are a major cause of Australia’s declining exploration expenditure. Canada, where exploration has been increasing, Industry Explorations

has a very different tax regime, which incentivizes activity, while costs in Africa and South America are probably 40% of those in Australia. These differences are clearly documented: you can easily find countries’ production data. Approvals here take a long time and are expensive, involving multiple layers of government, which is just not the case in Africa or South America.

Many Perth-based companies are now exploring these other world regions. Is it fair to say their confidence in Western Australia has faltered?

There is certainly a lot more uncertainty in Australia than there used to be. Costs are not the only problem; policy has been changing frequently, and there is a new political divide in the country that has never been seen before. Again, this is different from most countries in Africa and South America. You do not need to be a rocket scientist to see why companies are looking offshore today; they need to look after their shareholders’ interests, and Australia is becoming uncompetitive.

How are your members still operating in Western Australia facing up to the cost pressures?

A lot of our members who are exploring or producing in Western Australia are struggling. All the states and territories are in the same position of losing market share, particularly in the number of meters drilled. They are all trying to encourage companies to stay within their boundaries, but the support they offer exploration companies – usually on a matching dollar basis to look at new geological formations – is fairly modest.

However, if people only want to finance companies in international markets offering far better deals, there is not much Australian governments can do about it.

I have to admit, attitudes toward sovereign risk are ageing pretty quickly. The Fraser Institute put the DRC right near the bottom of its list of jurisdictions, and yet there are companies here that cannot get enough of it.

tax concessions to investors, dependent on Australia-based companies spending their money on green-fields exploration within a certain time and issuing them with a certain class of share. It is a very simple idea but has not yet been adopted; the current federal government broke its promise to introduce it in 2007.

AMEC is still trying to get governments and the Coalition to commit to the policy.

One problem is politicians take a vision that does not exceed the three-year electoral cycle. Australia only gets two consecutive years of action out of its political system because governments spend the third year in re-election mode. This makes it extraordinarily difficult to get through a long-term policy like mineral exploration tax credits. It is a pity: Canada, for example, has a political system that understands and manages the re-investment cycle, and has therefore positioned itself quite well. Unfortunately, Australia’s next couple of generations will be shortchanged by its current political thinking.

How competitive do you expect Australia to remain as a mining destination in today’s global economy, and what direction would you like AMEC to move in?

If there is a change in government and the new regime adopts a more realistic policy platform, conducive to lower costs, then Australia will receive its fair share of investment. Without exploration tax credits, it will be a hard ask to expect people in the current global uncertainty to stump up the necessary equity financing. Otherwise there will be an ongoing decline, with more capital moving offshore. Last year IPOs were down to 35 and this year there will probably be fewer than 20, back to where we were during the GFC. It is a real issue how difficult it is today to get large projects financed.

AMEC is well on-track to create the sort of business climate required by our members. We like to keep our proposals very simple; it is now incumbent on governments to get their acts together and reduce bureaucracy. •

What is the proposed mineral exploration tax credit scheme?

The Australian mineral exploration tax credit concept is very similar to the Canadian flow-through system. It offers - 25 -

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

EDITORIAL

Global Business Reports

Forward to Better Days Mining in Western Australia

The steep drop may be shallower now, but commodity prices remain lackluster.

Risk capital, so freely available in the postglobal financial crisis world, is scarce. The initial fall of mineral prices wreaked havoc on West Australian miners and the continued refusal of the market to recover is making it difficult for them to recover. A slow down in Chinese demand is causing concerns for the one export market that, a few years ago, looked insatiable.

The market capitalization of Western Australian miners fell 1.6% in March.

The value of Western Australian mineral and petroleum sales, which increase an average of 14% per year over the past decade, fell by 4% in the 2012/2013 financial year.

The boom and bust cycle, however, is not a new trend in the mining industry, and stakeholders are confident that good times will return. These tougher times demonstrate just how sentiment-driven the mining industry is: where using emotion-laden terms such as boom and bust can have a profound economic effect.

Reg Howard-Smith of the CME prefers not to use such language when discussing the mining industry. “We focus on sustained economic growth,” he said.

“There have definitely been interesting commodity price movements over the last decade, but we will see a major pickup in production that will contribute towards the sustainable development of the state. The sector is changing, not ending.”

“Australia is in very good shape with excellent opportunities,” said Liam Twigger, managing director of Perth-based financial house PCF Capital. “At the moment, however, companies are operating in an environment where the market expects an imminent cataclysmic event, so noAUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

body is putting money into mining stocks.

The good news is that many Australian companies are not saddled with debt, have good projects and experienced management teams.”

Despite a slowdown in transactional activity, PCF Capital’s Twigger is confident that Australia remains an attractive destination for foreign capital. “Chinese investment will continue, although we have probably passed the peak investment period. Australia remains a compelling investment proposition compared to other destinations and the Chinese are very comfortable with the regulatory regime here and the transparency it provides. Africa remains an alluring target for foreign investment, but the continent continues to generate new ways of relieving investors of their money and their projects if they are not careful,” he said.

Some signs of relief can be seen on the horizon: analysts are confident that the Australian dollar will soon drop to more manageable levels as the United States edges closer to energy independence and the European debt crisis is resolved.

As well, labor costs are due to drop once construction of the large-scale liquefied

natural gas projects is completed.

Patrick Coquerel, head of natural resources at Westpac, summarized the state of the market: “Westpac’s Chief Economist Bill Evans looks at three phases to three phases to the boom.

The first is the free lunch, when commodity prices skyrocket and resources companies make a lot more money at no extra expense. Over the last ten years commodity prices rose six- or seven-fold; now they are down to five times their original level, still relatively high. The second phase, which the industry is at the end of now, is the construction boom, in response, in this case, to high demand from Asia. This led the Australian Dollar to soar and to the high costs and productivity issues we have seen… Westpac does not believe there will be any more greenfield LNG developments in Australia for quite some time now… This will release more capacity for mining. The third phase will see income start to enter Australia from new production, which will continue to create great wealth for the country for many years. Having said that the corporate tax revenue will be limited by large depreciation allowances in the immediate

VALUE OF MINERALS Source: Western Australia Department of Mines and Petroleum ALUMINA

PETROLEUM

IRON ORE

GOLD

NICKEL

OTHER

120,000

100,000

80,000

60,000

40,000

20,000

A$ million

2000 2001

2001 2002

2002 2003

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2003 2004

2004 2005

2005 2006

2006 2007

2007 2008

2008 2009

2009 2010

2010 2011

2011 2012

2012 2013

Industry Explorations

EDITORIAL

Global Business Reports

Incentivizing Exploration Exploration expenditure has dramatically reduced in Australia over recent years.

According to estimates, the current level of producing mines and those close to development will sustain the mining industry in Western Australia for another 15 to 20 years. With less greenfields exploration activity, the future beyond 2030 is murky.

There are a number of reasons why exploration expenditure has declined in Western Australia, according to Reg HowardSmith, CEO of the Chamber of Minerals and Energy of Western Australia (CME), the main representative body of the resources sector in Western Australia. “The high cost of exploration in the state is a significant problem: over the last few years Western Australia has become one of the most expensive regions in which to operate. There is also a lot more competition on a regional level, causing many exploration companies to find greater opportunities in Africa,” he said.

Companies who stay in Western Australia face a costly approvals process that eats into their precious exploration capital. As KPMG’s national leader, natural resources Helen Cook explained: “Our regulatory environment is highly complex, from federal to state to local regulations, and a number of new taxes have been introduced.”

The number of prospecting and exploration applications in the state dropped by almost 50% in the fourth quarter of 2012, the lowest level since 2009. They

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stages of the production boost so it’s not all a bed of roses in stage three. However, if the Australian dollar comes off further, costs will reduce, and it will still be a very positive story.”

Inevitably, West Australian mining companies will have to adapt to economic circumstances. Once confidence returns, the industry’s key players agree that the state will continue to benefit from its blessed mineral endowments and strong expertise. “Western Australia is still a great place to explore,” said West Australian Minister for Mines and Petroleum Bill Marmion. “One only needs to see the success of the major companies operating in the region in order to understand how much potential exists in the state.”

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fell 7% year-on-year in the 2012/2013 financial year. Industry representatives such as the Association of Mining and Exploration Companies (AMEC) have called for a more streamlined process and less duplication amongst various departments to help junior miners secure licenses.

One option seriously being considered would be a measure similar Canada’s flow-through incentives scheme, where mineral exploration companies can pass tax breaks for exploration onto investors.

Although the Australian government has examined the scheme in the past, no such incentive exists despite backing by industry representatives.

“The CME supports greater incentives for exploration, such as flow-through shares, but it is difficult for the federal government to support a similar scheme in Australia since there has been major investment into the iron ore sector, making it difficult to justify exploration incentives,” explained Reg Howard-Smith of the CME. This, however, is changing. The introduction of an exploration incentives scheme was one campaign promise made by the

Coalition in this year’s presidential election. Tentatively, such a scheme would be implemented in July of 2014.

For those investors who braved investing in resource exploration previously, the market has rewarded them handsomely.

A case in point is Sirius Resources’s Nova nickel-copper discovery in August 2012.

With just over A$1 million in cash, the company managed to uncover an entirely new deposit in the Albany-Fraser Range.

The resource comprises of over 10 million mt of 2.4% nickel, 1% copper and 0.08% cobalt. “The target was such that if we drilled the hole and found nothing, it would be all over. The company only had A$500,000 left when we hit mineralization. It had looked so prospective all along that we did not want to allow ourselves to believe it was real; it was either graphite or one of the world’s biggest nickel deposits, and it turned out to be the latter,” said Sirius’s managing director Mark Bennett.

Since the Nova discovery, an almost inconceivable stream of good news has emerged from the project as further drilling revealed a similar deposit to Nova,

29 Industry Explorations

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AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Liam Twigger

Managing Director

PCF CAPITAL

What was the strategy behind developing Minesonline.com, and what value does it add to PCF Capital?

Having completed over $1.5 billion of mine sales and strategic partnering assignments over the last 15 years and developed a plus 4,000 international client base, PCF is extremely well positioned to provide advice on project values: be they exploration, development or production assets, and likely buyers.

Not every client wants to run a full service sale process but most are attracted to the value potential that comes from accessing a large sophisticated investor base. Hence MinesOnline.com was created to provide a low cost incredibly efficient marketing platform for parties seeking to sell or JV a project. Vendors can decide how much project information they release and can also pre-screen interested parties that seek more information. MinesOnline.com largest transaction to date is a $40.0 million cash sale for a copper project but most sales are in the $1.0 million to $10.0 million range.

MinesOnline.com has an approximately 40% success rate for projects posted onto the web site and is a complementary and value adding business to PCF. AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

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With so many companies facing the prospect of asset sales at much undervalued prices, how does PCF Capital ensure deals are made?

At the junior end, market caps are in many cases below cash backing and in our view most mining companies are significantly undervalued. Raising equity at the moment is very dilutive and companies should consider all means of raising capital that minimizes dilution.

This would include selling royalties over prospective ground or selling projects or JV interests. At the moment, the market for advanced projects i.e. those with a JORC Resource and a scoping study are in strong demand and can secure a premium value compared to a company’s market capitalization. PCF has a significant database and transaction knowledge especially in the gold, copper, iron and nickel commodities and we focus on managing price expectations at a very early point in negotiations with vendors. I think this is a major reason we have more success in closing transactions than others.

How would you characterize the current mood in the mining industry?

Is there any difference between this bust cycle and previous ones?

For the last two years, investors have been focused on dividend yield, security and liquidity and as a consequence mining stocks have been dropped like a ‘hot potato’. Mining companies have been poor managers of capital and less than upfront when it comes to reporting all in costs of production and have struggled to attract new investment. I believe this is beginning to change, yield driven stocks (banks and industrials) are trading a record multiples and are looking overvalued and on the back of an improved world growth outlook, investors are looking to get into growth stocks and the mining producers have started to feel some buying interest. It won’t take too long before we see this buying interest trickle down into the emerging producers and advanced exploration plays, but grass roots exploration probably has another 12 months or so to wait before we see a turn around and some well supported exploration IPOs. It is part of the circle of life and we have all been before.

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Private equity is entering the Australian mining sector in a big way. Is it the answer to the market’s problems, and what other options are available?

Private equity is not the solution to the mining market’s troubles. A few groups with deep pockets have come in, but strategic partnerships should be considered as another funding source. Overseas investors including Chinese private capital are recognizing the advantages of strategic partnerships and joint ventures in preference to an outright sale as they have a local party that still has risk capital at stake. You can always go from a strategic partnership to a sale, so it leaves more options open. Some companies are finding very innovative ways to generate value without diluting their shares; royalties are also very active, although they require ownership of a resource. One advantage of asset purchases and strategic partnerships is that the buyer can do all the due diligence it wants, which is not always the case with on market mergers.

What is your outlook for the future of mining in Western Australia, and of PCF Capital?

The global economic outlook is improving and the worst is behind us but nothing will change overnight and companies still need to protect their capital.

PCF Capital recently announced the establishment of a Beijing office which provides a strong indication of where we see our future lying. We see great opportunities in the year ahead and we will be first out of the blocks when the market recovers. •

Industry Explorations

EDITORIAL

Global Business Reports

27

which Sirius has named Bollinger. At press time, the company had more than A$60 million in cash and is actively drilling to advance the project toward feasibility.

Their success signals a new era for West Australian explorers, opening up previously underexplored or even virgin regions and highlighting the need to keep drilling despite challenging circumstances. Only then will the capital markets follow suit and return Western Australia to the dominant position it once enjoyed as a leading destination for exploration enthusiasm.

Cost Controls and the Push for Mine Profitability A critical challenge for the mining industry in Western Australia is to manage the rising cost of doing business in the state while increasing operational productivity. Costs have risen exponentially over the last decade, far outpacing that of the rest of Australia and negatively impacting Western Australia’s competitiveness in the global mining industry.

Productivity, classified here as both labor and capital expenditure versus output, has declined significantly over the same time frame. The recent high commodity prices led to less skilled and experienced employees getting paid exorbitant wages to mine more marginal deposits, requiring more ore to be processed at a lower grade. This vicious cycle caused a 50% drop in labor productivity and a 37% drop in capital productivity.

Steve Coughlan, managing director of Byrnecut, explains: “Labor costs in the mining resources sector across Australia have increased more quickly than productivity through the last couple of boom periods. Long term that is not sustainable. Labor shortages during the booms and the push by mine owners to execute projects regardless of the costs exacerbated this problem. These input costs are flat lining in the current downturn. Labor productivity and mine efficiency are more critical to the success of current and future projects in Australia given the drop in metal prices.”

Gascoyne Resources’s Michael Dunbar points to the mining industry’s adoption of a fly-in, fly-out lifestyle as one of the causes of cost overruns. With many mines located in remote areas of the state, companies have little choice but to Industry Explorations

import staff on a rotational basis. “We are seeing people moving away from fly-in, fly-out 2/1 rosters to 8/6 rosters, which is incredibly inefficient because in essence you need two people to do one job and, with labor costs already high, it is making the industry essentially uncompetitive,” he said.

The key for any company is to be profitable, and the way to do this is to increase the cash margin, according to Norton Gold Fields’s CEO, Dr. Dianmen Chen.

“In the past Paddington had been singled out as being a high-cost project, but over the past 9 months we have increased production and implemented a strict cost control environment. We have invested in an owner-mining fleet for both our open cut and underground operations, which were commissioned in 2013 and have helped drive our production costs down,” he said.

The successful mining companies in Western Australia are the ones that are managing costs and increasing efficiencies, according to Scott Jackson, managing director of QG, a Perth-based mining consultancy. “The adoption of technology

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is essential and companies must examine methods of exploration that will reduce upfront costs instead of relying on traditional techniques.”

Ray Hince, general manager of recruitment company JDA Applus Velosi, said: “It is difficult to rein in an established labor cost base, so the best strategy is to cut people out of your processing equation to reduce capital maintenance costs.

A number of companies are following Rio Tinto’s drive to automation. There will always be a requirement for maintainers, supervisors, planners, managers and professionals, but a lot of operational expenses can be cut,” he said.

This has led to opportunities for some.

Steve Coughlan of Byrnecut said: “We embrace innovation to drive productivity, and, for example, have developed new underground trucking technology with Powertrans, a Brisbane based truck manufacturer, to this end. The DAT60 is designed for ramp truck haulage in mines producing at depths previously considered to be at the limit for underground truck haulage. Six of these trucks are now in use at Gwalia Deeps mine hauling from a vertical depth of 1500 m. •

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Eddie Grieve

Senior Listings Manager

AUSTRALIAN SECURITIES EXCHANGE (ASX)

How important are mining stocks to the overall health of the Australian Securities Exchange (ASX)?

The importance of mining stocks to the ASX is evident using different metrics; by market capitalization, the proportion of mining stocks is 34%, while the number of mining stocks as a proportion of total listed companies is closer to 50%.

In the late half of the last century, this figure dropped to 10% and in 2007 was as high as 42%, which is still a very significant figure. The ASX has a long history of listing mining companies, since 1851 when the Melbourne exchange was established with the gold rush in Victoria. Since then, the Australian market has acted as a platform for mining exploration and development companies. As a result, we have entry requirements that encourage small, junior exploration companies. The minimum requirement to list is for a company to have net tangible assets of at least A$3 million, of which at least A$1.5 million must be working capital. We have rules that allow for companies that are raising money for companies to explore and develop, not to have a track record of revenue.

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

How does the ASX compare to similar global exchanges in terms of raising mining capital?

It is important to remember that you cannot create a vibrant mining market overnight; it is something that takes many years. Both the ASX and the TSX have been around for a very long time in the mining space, and the capital markets have developed an ecosystem around which well-informed investors, a community of analysts and professional groups who understand mining. This is one of the main benefits of the ASX; we are a well-developed, reputable international exchange in a country that has a strong focus on mining as an industry. We also offer real opportunities for junior companies, whereas the exchanges in London are more geared towards larger mining companies. The Hong Kong and Singapore exchanges have made moves to make their rules more inclusive to mining companies; previously they required companies to have a track record of revenue or profits, but these requirements have now relaxed. At this stage, however, neither of these exchanges are markets for junior companies.

There has been some talk about creating a flow-through shares structure similar to that of Canada’s, but so far nothing has emerged in Australia. As many juniors speak of the need to have a similar program, why has the idea not taken hold in Australia?

We have certainly examined the possibility of creating a similar structure here in Australia, but after canvassing our investor base we found that most people were happy with a single market. Nevertheless, it was clear that we needed to make some changes within that market to be more accommodating to smaller companies. One of those changes was to make it easier for companies to raise capital by effectively increasing our 15% cap per annum to 25% for companies under A$300 million market capitalization. Our approach has been slightly different in that we have retained one market but made changes to recognize the difference in capital needs of companies. For many years, the ASX required that a company that wished to raise more than 15% of its capital in a - 30 -

12-month period either had to receive shareholder approval, or issue those shares pro-rata to its shareholders. For smaller, capital-hungry companies, this did not address their specific needs; now for companies under A$300 million, they are able to receive shareholder approval to increase their capital from 15% to 25%.

How ripe is the climate for mergers and acquisitions for resources companies in Australia?

At the beginning of the century, there was a significant amount of mergers and acquisitions activity that did result in a lack of mid-tier miners on the exchange, but that has since been replenished. We now have a good representation of mining companies in the A$250 million – A$1 billion valuation range. This is also an area that we have focused attention on in terms of helping companies access the global financial markets.

Our Spotlight Series allows companies to better access the financial markets in London, New York, Hong Kong and Singapore, and this has been very successful.

What are the key advantages for mining companies listed on the ASX? What distinguishes the ASX from other major platforms for capital raising is that we are in the Asian region. We are increasingly becoming global in our outlook, with over 200 mining companies listed on the ASX with projects in Africa and over A$6 billion raised for African projects over the last five years. Global investors are quite comfortable about getting exposure to mining opportunities in developing regions through an ASX-listed company, which provides them with the security needed to invest in emerging markets. We are a reputable exchange with robust regulations in terms of mining disclosure. This is the future for the ASX, as more exploration takes place around the world. •

Industry Explorations

INTERVIEW

Global Business Reports

Scott Jackson

of the complexity that exists in most mining projects. It is about delivering clarity and enabling well-informed decision making. One of our tools, ’Scenario Based Project Evaluation’ has demonstrated significant value to a range projects with high impact on larger, more marginal projects.

Director

QUANTITATIVE GROUP (QG)

Can you give us a brief introduction to Quantitative Group?

Quantitative Group (now just called QG) was founded in 2001 by myself, John Vann (now Anglo American) and Olivier Bertoli (now Geovariances). All of us had previous experience working in medium to large mining companies. We began as a resource consultancy with a strong technical focus and an emphasis on working with the client. Our USP was ‘Our Skills on Your Team’. Over time, the business evolved into a niche player operating at the higher end of the market. Our clients are major, multinational mining firms, but with a growing list of medium and smaller sized companies on our books as well. QG’s team uses a collaborative approach to problem solving; in the current environment of higher costs and lower prices, we help our clients to optimize their projects and operations and improve their margins.

Our core business has evolved from resource estimation to building a platform for evaluating the entire value chain that takes into account variability and uncertainty in each step of the process. We now help smart companies quantify, understand and ultimately take advantage Industry Explorations

In what way has QG’s business and demand for consulting services been affected by the commodities downturn?

In the past 12 months there has been a significant change in the resource consulting market. Most, if not all mining companies have had to react to the falling commodities prices. Project work has decreased dramatically, which in turn impacts on demand for consultants. Like many others, QG’s growth has been adversely affected by the commodities downturn, in a measured way.

Most of our client base is larger companies with either committed projects or operations that now need to be run more productively. Going forward, we will look to grow our Brisbane and UK offices as well as contemplate offices in Vancouver and Johannesburg. Demand is still relatively high, and our challenge is to manage that demand while meeting expectations. Many mining companies have cut back on staff, so there is now an additional need for consultants to complete work such as resource estimation that can no longer be done internally. QG is not looking to grow for growth’s sake: we are committed to finding highly qualified people to work with us. Our business model is to focus on quality rather than volume, a value for money approach.

What is the biggest change that you have noticed in the consulting industry over the past few years?

The biggest change in the industry is that most companies have less money to spend on development projects which flows onto less drilling, less assaying and less resource estimation and project evaluation. As we know, in times of downturn, mining companies cut anything starting with the letter ‘C’ – contractors and consultants – however, for the right project, companies will still spend money. A lot of QG’s work is - 31 -

gained through repeat business, so engagement with the client is key to our success. Our clients expect a higher level of technical rigor from QG, and many of the larger consulting firms are not able to match that level of service.

Clients look for continuity with a high level of technical expertise, which can be delivered on time and on budget.

Mining companies are developing projects with lower grades and higher costs. How can these companies maintain profitability on such projects?

As part of our focus on value chain modeling, QG is an active participant in the Cooperative Research Centre focused on Optimizing Resource Extraction (CRC ORE). The primary goal of CRC ORE, of which QG is a leading SME, is to facilitate a fundamental transformation of resource extraction and the way it is evaluated. This is done through mine-wide process optimization that considers the consumption of energy, water and the generation of CO2 in mining operations. One of the CRC ORE initiatives QG is integral to is ‘Grade Engineering’, that is, examining ways to separate the economic material from barren rock before the milling process. This has huge potential to significantly reduce energy costs and improve margins materially.

How can Western Australian companies remain successful in a competitive global mining industry?

The successful mining companies in Western Australia are the ones who are managing costs and increasing efficiencies. Margin improvement is the new mantra in Western Australia. The adoption of new technology will be essential, and for example, companies must examine methods of exploration that will reduce upfront costs instead of relying on traditional techniques. There are a number of innovative companies who are working on various ways to collect, process and model data that will ultimately lead to faster, cheaper and better ways to evaluate and mine mineral deposits. Of course, this means more complex data will be collected and require processing. QG sees its role as helping its clients to distil that complexity to some form of clarity. • AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Justin Eve

Partner

PWC

What have the results that the mining industry has posted over the course of the past two years meant for the market for professional services within Western Australia?

PwC has noticed discretionary spend has tightened in some areas. However, counter-cyclical services aimed at improving the bottom line and lifting productivity have become more urgent. For example services around harnessing the power of Big Data and technological innovation typically associated with the retail and financial services industries have really kicked off for the mining industry.

PwC has been proactive in striking a number of agreements and acquisitions of productivity focused businesses to support our clients, such as GBI Mining Intelligence. GBI has an international reputation thanks to its database that contains mining equipment productivity and reliability information collected from client equipment monitors worldwide.

GBI analyses data and provides intelligence on the performance of a wide range of critical mining equipment ranging from trucks, electric rope shovels, front-end loaders, hydraulic excavators, backhoes and drills.

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

PwC has unveiled two new programs related to the mining industry. Could you provide us with an overview of these initiatives?

PwC has established two major initiatives to enhance both our own and the broader mining industry’s relationships with the communities in which we work.

The first, is the creation of a new business; PwC Indigenous Consulting (PIC); PIC is an unprecedented partnership between a group of Indigenous Australians and PwC. Our aim is to help create positive change by providing trusted professional services and advice to government, corporate and community clients on Indigenous matters.

PIC is majority owned, led and staffed

by Indigenous Australians. It is based on the idea that lasting change happens when it’s created by Indigenous people, not for Indigenous people. That’s why Indigenous ownership, management and delivery is such a fundamental ingredient of the PIC business. By combining the understanding of cultural, commercial, and community realities with the significant capabilities of the PwC network, PIC is in an ideal position to help facilitate this positive change.

The creation of this business also responds to several changes in the mining industry of Western Australia. First, businesses have begun to integrate themselves with indigenous communities. Andrew Forrest’s commitment to investing in indigenous training and development is a great example of this. Many mining companies have implemented local indigenous content requirements, and, as a result of these requirements, contractors can face KPI breaches should they fail to hire a sufficient number of indigenous employees or sub-contractors. Second, PIC responds to a growing need among indigenous communities to measure the way in which royalty payments – which have become larger than ever before, on the back of Western Australia’s iron ore exports – actually impacts their communities. Advisory services are needed so as to ensure that these funds are used for maximum benefit. Equally, PIC will help indigenous contractors keep pace with the changing demands of the mining industry and therefore enhance local employment.

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Could you respond to some of the comments that have been made that predict the end of Western Australia’s mining boom? Has the mining boom actually ended?

The amount of investment that the Western Australian mining industry has planned belies this presumption. Far from being over, our contention is that demand remains strong as hundreds of millions of people around the globe seek to increase their quality of life, and therefore the need for steel and other products requiring our commodities. .

We say that the boom has simply entered a new phase, one characterized by consolidation and margin focus. Several years ago, planned capital expenditures for resources projects in WA stood at $300 billion; today they are only slightly less, at around $250 billion. Although some mining projects have been delayed or put on ice, construction on the key projects will continue, as will the development of Western Australia’s mining industry.

How will we see the Western Australian mining industry evolve over the course of the next several years?

Western Australia is clearly still open for business. What we are seeing is a re-shaping of the mining industry. For the mid caps it will be a survival of the fittest as we expect to see more consolidation. It will be interesting to see who grabs the vacant large mid-cap spots at the ASX100 level, particularly in gold. In the next 6-12 months we expect to see a continued change in asset ownership such as the recent sale of Australian assets by Barrick and Alacer, and a number of mid-caps eying each other’s assets off. A reduction in the number of businesses that operate within the Western Australian mining industry is coming, and through this culling we will see a more innovative and productive mining industry emerge. Western Australian resource players will also need to become more global. This will be both a result of where the operations of Western Australian companies lie geographically as well as a consequence of the large amount of capital inflows, and continued demand for our resources that we will see for Western Australian miners from foreign destinations, particularly China. • Industry Explorations

INTERVIEW

Global Business Reports

Helen Cook

National Leader, Natural Resources

KPMG

What effect has the commodities downturn had the mining industry in Western Australia?

The mining industry has been going through a period of rapid growth, driven by commodity prices and Asian growth, meaning that there has been an increased amount of investment into the country, and KPMG’s business has been rapidly growing on the back of this demand. After commodity prices dropped in 2012, there was a general view that the market was slightly overheated, and there has been a recalibration in prices that has created a softening in the market. The long-term demand scenario for minerals will continue as long as Asia keeps industrializing. Australia is particularly feeling this recalibration, however, because of issues related to regulatory framework and productivity.

Investment has been increasing over the years and continues to stay high, although capital expenditure has dropped off to some extent. The current market fundamentals means that companies are looking more closely at the viability of projects, while dealing with an environment that is much more capital-constrained. Investment will likely pick up Industry Explorations

again once we get some stability back in the industry and investors become more confident in the longer-term fundamentals. The big focus for companies with projects in development or production is cost reduction, both through short-term measures like deferrals and staff reductions, and long-term issues related to productivity.

Productivity in Australia’s mining industry seems to be declining. How can we explain this trend?

At face value, the economic analysis of productivity in Australia’s mining industry looks terribly unproductive; however, when there is capital investment going on, there is no output. As we see the transition from big projects currently in construction moving into production, we will start to see this figure change.

Having said that, there are challenges to productivity for the mining sector. Our regulatory environment is highly complex, from federal to state to local regulations, and a number of new taxes introduced such as the Mineral Resources Rent Tax. In Western Australia there is a complex approvals system that has been made more difficult by state government’s lack of capacity to deal with the sheer amount of approvals. There is also a “brain drain” of staff moving from the public to the private sector, which exacerbates the problem.

What financing options are available to mining companies operating in this capital-constrained environment?

There are a number of strong mining exchanges globally, which creates increasing competition for listings. Having said this, the ASX has an incredible breadth of companies involved in mining. The main issue for companies is investor appetite. The ability for companies to do capital raisings has been incredibly limited and financing options have decreased. Debt is more expensive, and no one wants to raise money as a diluted share price. In response, companies are now looking more closely at mergers and acquisitions to bring their projects into fruition.

particularly when we see a large amount of investment being poured into Africa?

The flow of capital to African projects does not create an “us or them” scenario; there is plenty of capital to be shared. However, the challenge for Australia is that we have a very different regulatory environment than do emerging mining destinations. In the past there has been a lack of understanding between China and Australia related to rules of engagement, but it is a learning process for both countries and is steadily strengthening our relationship. Alternatively, doing business in parts of Africa can be just as complex as in Australia, but with different issues related to political stability and access to infrastructure. The resources sector in Australia does not represent a huge portion of the country’s GDP, but a very large percentage of our exports are mining-related. Most of the commodities are shipped to Asia, which creates a symbiotic relationship between Australia and Asia and ties our destinies together.

Do you agree with the perception that Australia possesses a high degree of sovereign risk, thanks to the introduction of new taxes?

Over the last few years there has been a series of government interventions in the resources sector, such as the Minerals Resources Rent Tax, that has created the perception that Australia has a high degree of sovereign risk. When the tax was first introduced in 2010 as the Resources Super Profits Tax, it came as a shock to the industry because there was no prior warning. The carbon tax that went into effect in July 2012 had a similar effect on the resources industry.

However, despite the backdrop of these regulatory uncertainties, the mining industry in Australia continued to do business effectively and adapted to the circumstances of the regulatory regime. •

How can Western Australia maintain the interest of overseas investors, - 33 -

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

EDITORIAL

Forward to Better Days Mining in Western Australia

Australian companies have not been as quick to explore outside their borders as their Canadian counterparts, but this is quickly changing. Although Perth-based companies have operations all over the world, a large proportion of mining companies are focused on the African continent. There are over 240 ASX-listed companies that are based in Australia but have operations in Africa.

Bill Turner, chairman of the Perth-based Australia Africa Mining Industry Group, explained the attraction of the continent to West Australian miners: “Africa has undergone some challenging times

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

since the end of the colonial period, from civil wars to dictatorships, but the situation has changed dramatically over the past twenty years. The continent has not been explored to the extent that Western Australia has been. The topography is very similar to Western Australia.”

Peak Resources are working to advance their Ngualla rare earths project in Tanzania, which is on track to a 2016 production target. According to the company’s chairman, Alastair Hunter: “Australian companies are becoming more and more adept at working in Africa and have a clearer understanding of how to cope with the issues.”

Mining companies working in Africa have a very different range of issues to deal with than in Australia. There are political risk issues, poverty, bribery and corruption, and the responsibility to assist in developing a viable industry in an infrastructure and educationally challenged region.

The allure of Africa as an investment destination translates into an A$50 billion flow of capital into the continent.

Steve Coughlan explained in the case

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of Byrnecut that, “while the Australian market is not saturated and opportunities continue to exist domestically, the largest relative contributor to growth for Australian business will be found in opportunities present within foreign markets.”

Perhaps directly as a response to the realization of the state of the domestic market, in September of 2013, West Australian premier Colin Barnett announced that the industry would see greater levels of collaboration between the government of West Australia and African governments. Focused on knowledge transfer in areas such as resource policy, these forthcoming agreements seek to strengthen West Australia’s foothold in Africa.

The allure of overseas exploration does not end on the African continent. An increasing number of Perth-based juniors are making inroads into Central Asia, Europe and South America, a historically Canadian-dominated mining region.

Companies such as Azure Minerals and Laconia Resources are generating a great deal of interest in projects in Mexico and Peru respectively. •

Industry Explorations

INTERVIEW

Global Business Reports

Steve Coughlan

Managing Director

BYRNECUT

Byrnecut was founded in 1987; since this point in time, the company has evolved to become of the largest contractors in Western Australia. How did this evolution occur?

At the time that Byrnecut was established, in 1987, business in Australia was difficult. The stock market crash had just occurred; globally, investor confidence was weak. While there were perhaps better moments in time to start up a company, we found that through establishing Byrnecut in this environment we ultimately emerged as a more stable company. The state of the times served as a test, strengthening Byrnecut. In the early 90s we sought expansion through the development of a relationship with a partner able to complement our business. Byrnecut became involved with ThyssenSchactbau, which initially took a 50% stake in the business, and then later, 70%. At this point in time our business was largely based around our expertise in hard-rock mining. From the 90s through today, we have continued to grow organically while seeking to develop synergistic businesses. In this way we have helped build business such as Mining Plus, in which we have a 50% stake and Quattro Project Industry Explorations

Engineering, which specializes in areas including civil engineering and mechanical design, among others. Employing this strategy we have built a reasonably sized business: our consolidated turnover in 2012 stood at $920 million across our many business units.

Several structural shifts have occurred in Western Australian mining: the industry has moved from mine construction to mineral production and, in response to rising labor costs, there has been a movement towards mine mechanization. What have these shifts meant for Byrnecut?

Business in 2013 is certainly different from business in previous years. There has been a noticeable drop off in forthcoming projects: we are simply not seeing the same volume of projects being tendered. Byrnecut has a longer-term view of the market and is not concerned over this decline in business. We have a strong, cash-based balanced sheet; our position is far different from many smaller companies, in particular those within resource exploration, who have a shorter-term view of the market and will see their fate determined by their ability to raise capital during these difficult times.

Labor costs in Western Australia have increased more quickly than worker productivity. Labor shortages during market booms and the push by many larger companies to execute projects regardless of the costs of resource extraction gave rise to this dynamic. Although we are now seeing these costs decline as a result of layoffs, labor productivity and mine efficiency have a large influence in the success of future projects in Australia. Within Byrnecut’s business units, we have sought to reflect this change in market dynamics by working to maximize the efficiency of our equipment. To this end, we have developed an underground truck in conjunction with PowerTrans of Queenland; this truck is designed to meet the needs of the miner that is too small to justify implementing a bulk hauling system, but now must mine at deeper levels and use trucks to transport the ore. Six of these trucks are now in use.

unions. In Queensland, we have seen projects halted over union debacles.

How has Byrnecut navigated this relationship?

Byrnecut does not have a relationship with any union. While some of our workers might be in a union, it is not something that we screen for. Unions should not become involved in one’s business; union representatives seek to hold businesses to certain standards, but have no standards themselves. Those standards that unions would seek to instill in business – in areas such as safety, for instance – are already a part of Byrnecut.

Investing in safety is good for one’s business; one does not need a union to tell them this.

Byrnecut is in a unique position as a private contractor. What advantages does this give the company?

Byrnecut is able to operate with agility as a result of being a private contractor.

Our board of director has three directors; public companies have a far thicker management structure, and with a thicker management structure comes bureaucratic processes that hinder their ability to take opportunities when opportunities arise and to respond quickly in the case of crisis.

If we were to meet with Byrnecut in three years time, where would we see the company be?

Byrnecut will have a larger presence outside of Australia. While the Australian market is certainly not saturated and opportunities continue to exist domestically, the largest relative contributor to growth for Australian business are found in opportunities present within foreign markets. We have already operated in many regions across the world, and will continue to employ the expertise derived from these experiences in pursuing future opportunities: be it in Africa, the CIS, Europe or South America. While in some areas, in particular non-English speaking emerging markets, Byrnecut will seek out partnerships, Byrnecut has the capabilities to pursue many of these opportunities on its own and will do so moving forward. •

One particularly contentious relationship for Australian contractors is the one that they must manage with - 35 -

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Hedging Bets: A Diversified Exploration and Production Portfolio

“Western Australia possesses highly diversified mineral deposits; currently we are producing over 50 different minerals.

The state produces gold, nickel, alumina, copper, and mineral sands, to name a few. Certainly when investors think of Western Australia, they associate the mineral potential with iron ore, but we are very diverse in our commodities, which will continue. One particular area of interest is in rare earths and lithium, where we have seen large growth recently.�

- Reg Howard-Smith, Chief Executive, Chamber of Minerals and Energy (CME) of Western Australia Image: Doray Minerals Ltd

EDITORIAL

Iron Ore

Global Business Reports

IRON ORE PRICES Source: Western Australia Department of Mines and Petroleum US DOLLARS PER DRY METRIC TON 196 182 168 154 140 126

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Iron ore continues to be the driver of Western Australia’s mining industry.

Nearly 93% of Australia’s iron ore deposits are found in the state, with most of these being located in the world-class Pilbara region, home to mining giants Rio Tinto, BHP Billiton and homegrown Fortescue Metals Group. However, a new iron ore region is emerging in the Midwest, with large hematite deposits ready to be mined as soon as port and rail challenges are solved.

Most iron ore is shipped from the port of Esperance, on the southern coast, or Port Hedland in the north, but these two main hubs are already operating over capacity. A much desired A$6 billion development of the Oakajee port in the western part of the state held promise, but was recently suspended due to a lack of interest from potential joint venture partners; leaving a slew of juniors —and investors— in limbo, whose development depends on regional investment.

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Some, however, view the region’s development as only a matter of time. Padbury Mining, a fellow member of the Geraldton Iron Ore Alliance, which has 1 billion mt of JORC-compliant magnetite and 11.5 million mt of direct shipping ore in the Midwest region, took the unusual step of acquiring the intellectual property from a failed Chinese-backed bid for the development of Oakajee’s infrastructure. The intellectual property itself is held in a subsidiary, which Padbury’s CEO, Gary Stokes, hopes to divest to an infrastructure development company.

“Peak Hill’s region could absolutely become the next Pilbara,” said Stokes.

“We believe there are 50 billion mt there; already 21 billion mt, JORC-compliant, have been identified. The Midwest is set to grow exponentially, just as soon as the infrastructure developments go ahead. China has an exposure of perhaps $5 billion in the Midwest, so it is not just going to sit and watch.” • - 38 -

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If contextualized and compared against previous cycles that Australia’s mining industry has experienced, this current downturn is not unusual – granted this past cycle has been stronger (both on the upside and downside) than many that we have seen in recent times. For BC Iron though, the success or failure of a business is determined more by its fundamentals than market conditions.

While management, and in particular cost management, become more important during a market downturn, strong fundamentals for a project are difficult to devalue.

- Morgan Ball, Managing Director, BC Iron Ltd

”

Industry Explorations

INTERVIEW

Global Business Reports

Gary Stokes

Managing Director

PADBURY MINING LTD

Since we last saw Whitecap in 2011, you have managed to grow the company to a strong mid-tier player on the TSX. Can you highlight the achievements in the past two years that have enabled you to do that?

Could you provide an overview of Padbury Mining and its Peak Hill project?

Padbury Mining began as a gold explorer in 1983, and in 2009 we took an interest in iron ore. Today the company has around 1 billion mt of JORC-compliant magnetite and 11.5 million mt of direct shipping ore; we are looking to expand the resource but our entire current focus is on infrastructure. Two years ago, in an attempt to differentiate ourselves from other small explorers searching for Chinese investment, we purchased the intellectual property from the failed Chinese-backed bid for the Oakajee infrastructure development for A$2 million. The winning Japanese bid lost their exclusive mandate in December 2011, and our proposal has gained strength in China. A lot of companies regard it as a fundamental piece of infrastructure for the region.

juniors and mid-caps. The brokers are looking for the next great thing: they have moved swiftly from iron ore to copper to gold to rare earths to potash. Fortunately, Padbury Mining has been prudent to keep enough funds for the next 18 months. As soon as the green light is pressed on Oakajee, our shareholders will be very happy. The Chinese investor who owns five per cent of the company is very bullish about our share price, and indeed our potential returns are quite lucrative. Value is just not reflected in the current market.

How would you characterize the Australian investment community’s current appetite for risk? What financing options are available for junior companies?

The Australian investment community’s risk appetite is low. People see a weak market and are unwilling to take a gamble. Most of the money coming in is from offshore, and it is mostly going into bluechip companies. Very few financing options are available for juniors like Padbury Mining. No one will give us debt, so our options are equity and off take agreements. China’s new regime is still cash positive, and is likely to spend most of it on domestic consumption, with lots of steel-intensive road and rail construction. Other iron ore markets, like Brazil and India, are also emerging. •

What does ownership of the intellectual property mean for Padbury Mining and, in particular, its Peak Hill project?

Padbury Mining currently has sufficient resource to produce about 10 million mt per year; however, our property is 550 km from the ocean. The nearest port, at Geraldton, will not get anywhere near reaching its expansion targets due to community pressures. This is good because the more pressure is put on Geraldton, the better the case for Oakajee will become. For the port to work it needs 35 million to 40 million mt of ore to be shipped. All of the projects in the Midwest will still have more material than they can ship out of the country, so there is no point at the moment in Padbury Mining working to increase its JORC resource to our eventual target of 3.5 billion to 5 billion mt. We do not want to be an infrastructure company ourselves; we want a return on the gamble we took, but most importantly we want rail and port access.

What will be the likely return on your investment?

What is the outlook for your shareholders?

Padbury’s share price has taken a bit of a hammering on several fronts. The market generally has been harsh on Industry Explorations

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AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

EDITORIAL

Global Business Reports

Gold

Grappling with the market

Western Australia’s evolution has historically been tied to gold rushes. Today, Western Australia is home to one of the country’s largest gold mines at Boddington, owned by Newmont, and exciting new discoveries like Tropicana, a 118 million mt resource containing 7.89 million oz of gold. However, the recent slide in price of gold has been strongly felt by gold miners operating in the state. Average cash costs for operating gold mines in Western Australia are above A$1,000/ oz. While still economic, falling prices and escalating costs are creating an environment of uncertainty amongst the state’s gold miners.

Enter small juniors, who are attempting to make economic projects out of less.

The projects coming into fruition in Western Australia over the near term are those that have less reserves or a shorter mine life, but lower cash costs and, as a result, are highly profitable.

Doray Minerals that owns the Andy Well project in the northern Murchison region poured first gold in September 2013.

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EDITORIAL

Global Business Reports

The 444,000 oz resource is expected to produce around 74,000 oz/y of gold over a four-year mine life. With cash costs at around A$900/oz, the payback period for investors is likely to be less than two years.

Doray’s managing director, Allan Kelly, explained how the company was able to convince shareholders that Andy Well was worth mining. “The market’s focus has been on ounces instead of grade.

The simplest way to value companies is by putting an enterprise value per resource ounce, and when we are trading at A$300/oz, the market viewed us as overvalued. A company that has 1 million oz at 1g/mt might be trading at A$20/oz, and compared to them Doray seems expensive. However, these projects might not even go into production,” he said.

Despite the high costs of getting gold out of the ground in Western Australia, the assets are still attractive to overseas players. In August 2012, Zijin Mining, the No. 1 gold producer and No. 2 copper producer in China, acquired 89% of ASX-listed Norton Gold Field’s shares. As Dr. Diamen Chen, Norton’s Perth-based CEO, explained, Zijin’s strategy was always to develop internationally and it saw Norton, and specifically the company’s Paddington gold mine, as a good platform for the company’s overseas growth. “Norton’s strategy is to increase gold production, reduce costs and to seek further merger and acquisition opportunities to expand its operations in Australia. Our plan is to double production in the next three to five years while significantly reducing operating costs.

The company will increase the mill feed grade; last year our resource grade was higher than our mill grade, so the development of a large base load mill feed, which we called Enterprise, will provide over five years base load mill feed for our operations, at 1.72g/mt. The higher mill feed will provide us with the opportunity to significantly increase our gold production over the next few years,” said Dr. Chen.

Gold companies that are currently at the development stage face the challenge of building capital-intensive mines without steady cash flow. Gascoyne Resources is targeting production at their 1 million oz Glenburgh project by late 2014. “We did a placement late last year to some 43 Industry Explorations

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AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Dr. Dianmin Chen CEO and Managing Director

NORTON GOLD FIELDS LTD

Paddington’s 2012 production totals surpassed the original 150,000 oz target, albeit at high costs; 2013 witnessed record production with declining costs. How has the transition to an owner-operator model helped to control operating costs?

Norton continues to work hard on improving production targets at Paddington.

Record gold production of 172,739oz in 2013 saw Norton exceed its 2013 production guidance of 163,000 oz to 167,000 oz and we remain confident that we can achieve more than ten years mine life due to the large resource. Our C1 cash costs declined from A$1,239/oz (CY2012) to A$960/oz in 2013. We have maintained our ore reserve at over 1 million oz for the sixth successive year, and our mineral resource at over 6 million oz. Exploration is focused on finding good resources and reserves so that our high production strategy will be sustainable over the longer term with a particular emphasis on high-grade targets such as Black Flag West. The key for any company is to be profitable, and the way to do this is to increase the cash margin. In the past Paddington Operations had been singled out as being a high-cost project, but over AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

the past 18 months we have increased production and implemented a strict cost control environment. We have invested in an owner-mining fleet for both our open cut and underground operations, which was commissioned in 2013 and has helped drive our production costs down.

What was the reason for Norton Gold Fields to hedge its gold price?

The gold price has been hot and cold in the past months, and as a producer we can’t allow such volatility to affect our operations. Short-term hedging provides cash flow certainty, boosting our ability to invest in further growth. That is why Norton took the lead and started a hedge program in August 2013. At the end of February 2014, Norton had a total hedge book of 84,741 oz at a weighted average of $1,476.49 per oz, which is 47% of our 2014 production guidance of 176,000 oz to 184,000 oz. Our 2014 guidance C1 cash cost per ounce is A$870/oz to A$930/oz, which gives us a good margin.

How has the wider investment community reacted to the changes in Norton’s management and operations?

If you look across the board of gold producers in Western Australia, Norton’s share price has not experienced a dramatic decrease in the light of lower gold prices. In the past year, our share price has fluctuated around $0.12 to $0.13, which is not a bad result. However, Norton’s share price does not necessarily reflect the company’s position, and has been probably held back because having a dominant shareholder can limit share liquidity. We believe our strategy of increasing production while decreasing our costs and acquiring new companies will help to elevate our share price. Norton is well positioned to be a much more profitable company, and we hope the positive initiatives we have enacted will be reflected in the market.

What is your view on the current level of consolidation taking place amongst junior miners on the ASX, and where does this leave Norton?

The Australian market lacks a mid-tier mining industry; at the moment, the stock exchange only hosts one or two companies in this space, which is especially visible in the gold industry. This - 42 -

is an opportunity for Norton to consolidate with other companies and generate something special. In August 2013 Norton finalized a friendly acquisition of Kalgoorlie Mining Company, which has over 330,000 oz of resource right at our doorstep and later that same year purchased the Lady Bountiful project.

What is your reaction to the statement that Australia’s mining boom is over?

The fear that the Australian mining boom has ended was spurred by China’s economic slowdown, but a 7.6% growth rate in China will still be able to provide good opportunities for the Australian mining industry. China’s economy still needs resources, and Australia’s mining industry supplies these resources. We might not see the same boom times as in 2007, but by no means is the mining industry in jeopardy; we will likely see a stable period, so the growth will be more mature and give more opportunities for the industry to sustain a reasonable growth period. In order to support the long-term growth of the gold industry in Western Australia, companies need a good exploration program; without one, the industry’s growth cannot be sustained.

Norton’s A$37 million commitment to exploration means that we have a lot of further opportunities to find more resources. Our target is to significantly increase our resource base to provide a better platform to support sustainable gold production. Western Australia is still one of the best places to explore; the state government is very supportive of the industry, and there are opportunities to find better resources, particularly in the existing goldfields. With the Exploration Incentive Scheme proposed by the Federal Government, we will hopefully see more capital dedicated to Greenfield exploration in Western Australia.

Where would you like to lead Norton in the three to five years?

We are going to double our production in the next three to five years to achieve 300,000 oz per annum and will work hard to surpass this target and achieve higher production at lower cost. Norton is aiming to reach the status of mid-tier gold producer that will provide a good return for our shareholders. • Industry Explorations

EDITORIAL

Global Business Reports

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large gold funds in the United Kingdom, and have been doing a lot fundraising to allow us to continue aggressive exploration,” said Michael Dunbar, managing director of Gascoyne Resources. “It is important for us to keep drilling because once the company loses momentum it takes a huge amount of time to gain it back. In the meantime, the company is still responsible for administrative expenses.”

Despite the challenge of a high-cost environment, Doray’s Allan Kelly believes that the opportunities outweigh the negatives. “There is more gold to be found in the state, both in known deposits and previously operating mines. Also, the big gold companies that acquired most of the mid-tier companies in the 1990s are now beginning to spin out projects that have not been worked on for many years,” he said.

A sense of historical perspective is needed to understand the impact that the changing price of gold has had on the viability of Western Australia gold exploration and production. Changes in the price of gold over the course of the past five years have had a net-positive impact; the industry has picked up projects that were once previously deemed uneconomical. Additionally, the volatility seen in the price of gold —while undoubtedly sucking millions from the market in fallen valuations— has not come without a silver lining; those that have hedged their resources and hedged smartly have guaranteed the tenability of their mine.

Through the Nullagine gold mine, Millennium Minerals is one of these few companies that has exhibited strong results in spite of a decline in the perceived feasibility of a West Australian gold exploration-to-production story. Part of a tenement package acquired by Millennium Minerals in 2001, the resource body of the Nullagine gold mine was explored extensively until 2005, when exploration ceased on account of what were uneconomic grades of mineralization at the Industry Explorations

time. The gold price then stood at less than $600/oz.

A rise in the price of gold, however, gave way to production. Brian Rear, managing director of Millennium Minerals explained: “The Nullagine Gold Project was the subject of a feasibility study back in 2006, however, the availability of engineering capabilities, experienced manpower and the low gold price combined to see the project put on the shelf.

By mid 2009, the viability of the project changed with the price of gold rising and with a lot of the industry pressures such as manpower and capital construction demand easing.”

In September of 2012, the Nullagine gold mine poured its first brick of bullion. Commercial-scale production commenced in January of 2013. Though the

- 43 -

operation initially assumed an eight-year mine life, this will likely be extended; resource estimations have since placed the ore body in excess of 1 million oz of gold.

Although the Nullagine gold mine was conceptualized at a time when the price of gold was greater than the price at which it stood in the second half of 2013, Rear is unfazed regarding the impact that future turbulence in gold pricing might have on the profitability of the mine, even with an effective break even cost of $1,100/oz. Rear said: “Should the gold price change, the way in which we mine the deposits will change as well.

Should the gold price fall significantly, the Nullagine gold mine will continue to produce; half of our gold is hedged at a price of A$1,630/oz.” •

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Brian Rear

Managing Director

MILLENNIUM MINERALS LTD

Could you introduce us to Millennium Minerals’ principal project, the Nullagine Gold Mine?

The Nullagine Gold Mine was commissioned in September of 2012. The mine was built on time and in budget: it was extremely important to Millennium Minerals that we construct the mine within these two parameters. Delays or a more expensive mine than initially conceived would have meant that Millennium Minerals would have to go to the equity markets to raise capital. Raising capital at such a difficult time for the industry carries with it a stigma, one that can distort the way in which investors view a project.

The Nullagine Gold Project was the subject of a feasibility study back in 2006 however availability of engineering capabilities, experienced manpower and the low gold price combined to see the project put on the shelf. By mid-2009 the viability of the project changed with the price of gold rising and with a lot of the industry pressures such as manpower and capital construction demand easing. Commercial production began at the Nullagine Gold Mine on the 1st of January 2013: the original life of mine plan accounts for slightly less than eight years of producAUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

tion, however we believe that the project life will grow to 10 years and better. The Nullagine Gold Mine currently has ore reserves of 465,000 oz of gold. However, little money has been put into exploration; we are confident that we will be able to easily bring our Ore Reserve estimate to over 1,000,000 oz of gold in due course.

Our overall sustaining break even stands at A$1150/oz, with a raw cost of production of A$970/oz. Should the gold price change, the way in which we mine the deposits will change as well. Should the gold price fall significantly, the Nullagine Gold Mine will continue to produce: half of our gold production to September 2015 is hedged at a price of A$1630 per ounce We plan to explore heavily in the area surrounding the Nullagine Gold Mine. We will have halved our debt in our first 18 months of production so as to free up capital for exploration. In 2014 we will spend between $7 million to $8 million on exploration.

The Nullagine Gold Mine operates in one of the hottest regions in the world.

How has this changed the process engineering solution used at the mine?

The Nullagine Gold Mine sits in an extremely hot area of Australia. Slightly north of our mine site is Marble Bar, Australia’s hottest town. It can reach 50 degrees Celsius in the summer. In developing the mine site we had to attach a massive lubrication system to the mill as a result of the high temperatures. Additionally, the mine had to be approached differently in several ways because of the region in which it sits. Lubricant choice became more important. Millennium Minerals has also had to deal with a slew of worker-related issues. Exploration is seasonal in the region; work ends in November and resumes in April. Dehydration is also a chronic issue for those few workers that do work outside. This has underscored a movement towards mine mechanization and remote operations, in addition to the cost of labor.

How has the market responded to Millennium Minerals’ strategy, which has focused heavily on paying off debt and further exploration? What is the most appropriate strategy for surviving the market?

There are different signals coming from the market about what is an appropriate - 44 -

strategy for developing an operating a new mining company. There are multiple perspectives on what should be done. We met with one institutional investor who advised us to cut exploration completely, focus on mine efficiency and just mine the known reserve and pay dividends, as the market likes dividends. This point of view is extreme; Millennium Minerals will focus on paying dividends as soon as possible, but not at the cost of the long-term sustainability of the mine. Those operating in the mining industry are now operating in survival mode. Those that are able to emerge successful will be successful just by virtue of being in business, yet this entails having a strategic vision for the mine’s future.

Several regulatory changes have been discussed so as to revitalize resource exploration and production in Western Australia. Which of these proposed schemes does Millennium Minerals see hope in?

Several reforms at the State level have been discussed and implemented to a degree that will have a positive impact on the Western Australian mining community. We now have a scheme whereby the environmental bonds now in place will be transferred into a levy that would then be used to rehabilitate mine sites that have been closed. Also in the area of environment: some have suggested making public environmental data related to one’s mine site; this would certainly have a strong impact on the perceived feasibility of certain projects. One additional measure that must be taken is the devolution of environmental regulation back to the State level. A huge gap exists between the mining community and Canberra; Canberra does not adequately understand the mining industry. By bringing Canberra into matters of the environment a tremendous amount of bureaucracy has been created.

In the case of Millennium Minerals, which had to go to Canberra for closer examination of several of our satellite deposits, it delayed our permitting by a year in these project areas. Those involved in environmental regulation in Australia on a national level are sometimes civil servants not necessarily environmentalists; they do not fully understand environmental issues, nor mineral production or the time value of money. • Industry Explorations

INTERVIEW

Global Business Reports

Michael Dunbar

same time, we are still drilling to expand the resource. Once our mining license is granted and native title rights are sorted out, there is a memorandum of understanding whereby the mines department can permit a project of Glenburgh’s size to fully permit the project, which takes up to six months.

Managing Director

GASCOYNE RESOURCES LTD

Can you give us a brief introduction to Gascoyne?

Gascoyne has a strong board and management team with years of experience in bringing mines into production, which is what we are aiming to do with the Glenburgh project. The project houses over 1 million oz of gold; it sits opposite the Yilgarn Craton in the Gascoyne Region. Geologically Glenburgh’s setting is similar to. Sirius’s Nova and Bollinger discoveries, which are also located on the margins of the Yilgarn Craton, companies take notice of the margins as fertile places for minerals, these recent discoveries show there is a huge amount of potential left in Western Australia. Gascoyne’s secondary project, Dalgaranga, is a more traditional greenstone-hosted gold deposit.

Gascoyne is targeting production at Glenburgh by late 2014. What milestones need to be reached in order to achieve this target?

We took an alternate strategy to many companies in that we already completed baseline environmental studies, and identified a water source for the project at the Carnarvon Basin. At the Industry Explorations

What is the focus of your 2013 drilling program, and how are you funding it?

Gascoyne’s main focus this year is on the feasibility aspects at Glenburgh.

Nevertheless, we will still be drilling nearly 15,000 m at Glenburgh this year, and 8500 m at Dalgaranga. We did a placement late last year to some large gold funds in the United Kingdom, and have been doing a lot of fundraising to allow us to continue aggressive exploration. So far we have been successful by keeping our discovery costs under A$10/oz.

What potential exists at Dalgaranga, and how does the acquisition fit within Gascoyne’s strategy?

Dalgaranga was acquired from some local prospectors for A$150,000 and some shares; the previous owners liked what we had done at Glenburgh.

The project has the potential to house 1 million oz, although we are still defining the reserves. The project was mined up until 2000, but shelved because of gold prices at the time. We are undergoing a scoping study and continuing our drilling throughout the year. One advantage at Dalgaranga is that there is an existing plant at Mount Magnet, which is very close to the project.

Gascoyne has continued to advance Glenburgh despite the capital-constrained environment. Why have you pursued this strategy despite the challenges faced by your peers?

Gascoyne’s motto has been ‘prior preparation prevents poor performance’, and that has served us well at Glenburgh.

We have all been involved in developments before, and are aware of the elements that can delay companies at an early stage. Yes, it is an aggressive timeframe, but it is not one that cannot be done successfully. We are advancing the feasibility study far sooner than a - 45 -

lot of companies, because we want to protect our shareholders from excessive dilution. As we drill, we might find more reserves and need to expand the plant, but this can be done while generating cash flow. The amount of exploration potential is still massive at Glenburgh; we have seen our resources grow from 200,000 oz when we listed to over 1 million. The reason why Gascoyne is continuing to be aggressive is to benefit our shareholders; we raised money for the purposes to explore and develop these projects, and we need to deliver results.

It is important to keep drilling because once the company loses momentum it takes a huge amount of time to get it back. In the meantime, the company is still responsible for administrative expenses.

Gascoyne raised A$6.7 million in a capital raising last year to fund our projects, and late last year raised an additional A$3.6 million to continue exploration.

We are in a fortunate position to have cash in the bank, but will not continue drilling at the same pace as last year.

The strength that we see in our share price is a result of not sitting on our cash and continuing to drill, and investors appreciate that we have results to show.

In your view, what are some of the key challenges that exist in Western Australia’s mining industry?

Productivity has been waning in Australia over recent times, particularly in the mining industry. We are seeing people moving away from fly-in, fly-out 2/1 rosters to 8/6 rosters, which is incredibly inefficient because in essence you need two people to do one job, and with labor costs already high it is making the industry essentially uncompetitive. Red and green tape is also causing overstaffing of projects, and also results in loss of productivity. The types of technology available today could allow for people to be based offsite but servicing the mine. There will always be a need to have employees on site, but there are ways to increase the efficiency of an operation that are easily available.

Also, while safety is paramount, safety for safety’s sake is also a challenge, meaning that the endless amount of paperwork involved is detracting from the core activity. • AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Allan Kelly

Managing Director

DORAY MINERALS LTD

Global Business Reports

When we met with you in 2011, Doray had just had the most successful IPO on the ASX. The Company has since transformed from successful explorer to developer and now gold producer - moving the Andy Well Gold Project into production in August 2013. How has Doray managed to be so successful in such a short amount of time?

The main key to Doray Minerals’ success comes down to the quality of the Andy Well Gold project. When we made the first discovery in 2010, we knew we were going to mine the deposit because the grade was so high.

Even if we could not justify building a processing plant onsite, we could truck the ore to another processing plant to treat it and still be profitable. Doray developed a timeline to reach the completion of a bankable feasibility study, and at the end of 2010 raised A$21 million to fund these goals. Everything came together in 2012: we completed the bankable feasibility study, received our mining lease, and acquired 100% of the project from our joint venture partners.

We were able to get a large proportion of our funding through debt, because the payback period would be very quick.

Finally, we raised an additional A$43 million to fund construction of the mine and pay back our joint venture partners.

For the last three years, everything has happened on time and on budget; there was never any doubt that the project would be economic. We knew that the original deposit was always the tip of the iceberg, and in early 2012 we found a second lode, Judy, where we released our maiden resource in March 2013. The discovery of Judy allowed us to justify building our own processing plant, despite having a small resource, because the closest plant is 3 million tons per annum and if we were to process the ore through such a big mill, we would lose a lot of the grade.

What are some initial production estimates and cash costs?

Andy Well’s Wilber Lode is estimated to produce approximately 75,000 oz per year over an initial 3.7 years with cash costs (C1) expected to range between A$480/oz to A$530/oz and an expected average all-in sustaining cost in the mid

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

- 46 -

to high A$900s/oz, placing it in an enviable position to competitors. Even at A$1,500/oz there is still a good margin.

The Wilber Lode gold deposit has a current Reserve of 711,000 mt at 10.9 g/t Au for 249,000 contained oz. The Judy Lode has the potential to add another year to the mine life at the same rate.

Doray’s cash flow will then allow for further exploration while paying down the company’s debt and even potentially paying dividends to our shareholders.

What was the main challenge for Doray to bring Andy Well into production?

A key challenge was convincing people that the project was worth mining; the market’s focus has been on ounces instead of grade, especially when you look at the types of gold deposits in West Africa. The simplest way to value companies is putting an enterprise value per resource ounce, and when we are trading at A$300/oz, the market viewed us as overvalued. A company that has 1 million ounces at 1g/t might be trading at A$20/oz, and compared to them Doray seems expensive. However, these projects do not have the same economic value as Andy Well and might not even go into production. This project will make a lot of money for Doray and put us in a position to acquire further assets.

At the moment this does not seem to be reflected in Doray’s share price; how do you explain this market volatility?

There are some issues related to the share price that are out of Doray’s control; the markets are of course not as healthy as they were a couple of years ago. We are confident however that investors will soon recognize that we put this mine into production on time and under budget, and Andy Well is now Australia’s newest high-grade, low-cost and high-margin gold producer.

We now need to meet our production goals and accelerate exploration. There is significant potential to increase the mine life at Andy Well as indicated by the Judy Lode and more recent high-grade discoveries at the Suzie and Kirsty Zones.

We need to keep meeting our goals without worrying too much what the market is thinking.

Industry Explorations

Global Business Reports

Looking at the size and scale of gold deposits being found in West Africa, what is your outlook for gold players in Western Australia in terms of its competitiveness in attracting investment capital?

Western Australia is still very competitive. At Andy Well, our two major costs are diesel and labor, which comprise nearly 60% of our costs. While there is a high cost of doing business in Western Australia, if you weigh that against the level of sovereign risk in these emerging mining destinations, Western Australia is still an attractive place for investment capital. There is more gold to be found in the state, both in known deposits and previously operating mines. Also, the big gold companies that acquired most of the mid-tier companies in the 1990s are now beginning to spin out projects that have not been worked on for many years. The funny thing about gold exploration is that the next one that you find is always a little bit different from the last one; if you have a little imagination, there is always something new to find.

What is Doray’s long-term strategy in Western Australia and abroad?

Doray’s focus is on reaching production targets, delivering strong financial results and accelerating exploration.

For the rest of 2014 we will systematically drill out the Suzie, Margaret and Kirsty structures within the Andy Well Project area and this should hopefully result in a step-change in the resource and reserve base, and ultimately mine life, of the project. We have ideas for new projects that we are looking at in the vicinity and have a significant landholding in the region. Our exploration strategy encompasses both near-mine discoveries and acquisitions outside the region. We are looking for something that will take us to the next level. Andy Well is a great starting point but we want something that will build us into a A$600 million or higher company. Doray has proven it can successfully explore, develop and produce, and can achieve goals, targets and time critical milestones. Now, with a steady cash flow, the right management and a tight share registry, we can continue to build upon our track record of success. • Industry Explorations

WA’s Newest Gold Producer ASX: DRM Doray Minerals is Western Australia’s newest high-grade gold miner and producer at its Andy Well Gold Project in the northern Murchison region of WA. The Company’s transformation from junior explorer to gold producer in just 3.5 years has been meteoric.

There is near-term project upside with the potential for additional deposits and the Company has an excellent track record of meeting milestones on time and under budget.

A strategic portfolio of gold properties in the Murchison and South Australia places the Company in an enviable position of future potential upside and returns to shareholders.

Led by an experienced team with a track record of discovery, development and production, Doray is now a low-cost gold producer and self-funded explorer. www.dorayminerals.com.au

EDITORIAL

Nickel

Global Business Reports

NICKEL PRICES Source: Kitco US DOLLARS PER POUND 14,000

12,000

10,000

Nickel-and-diming deposits

8,000

6,000

JUN 2009

MAR 2010

DEC 2010

JUN 2011

MAR 2011

DEC 2012

JUN 2013

MAR 2014

NICKEL EXPORTS

For a commodity whose price has been in the doldrums for the past few years, surprisingly, some of the most exciting stories to emerge recently from Western Australia have been from nickel companies. Sirius Resources’s share price rose by nearly 3,500% with the discovery of Nova and Bollinger.

Excitement around these discoveries has been contagious. Reciting a mantra of “grade is king” to those that might criticize exploration for the commodity at a time when nickel has been the worst performing base metal of 2013, resource exploration companies have acquired concessions surrounding those of Sirius, hoping to strike the 3% grade mineralization that has made Sirius famous. Hopefuls include Matsa Resources, who has seen promising drill results for polymetallic mineralization at its Symons Hill project which, is located about 6 km from Nova; Rumble Resources, who also has early stage work near Nova; and Sheffield Resources, whose Redbull project has shown a mineral signature similar to that of Bollinger and Nova.

Should these prospects materialize in high-grade nickel mineralization, they could be met with a more receptive market in the coming years. David Singleton, Poseidon Nickel’s CEO, is bullish on nickel prices. “Nickel forecasts are predicting huge price rises by 2016, due to supply problems in the market. As long as the demand side is reasonable, then the supply side is going to struggle to fill in the gap,” he said.

The way in which this may play out, however, could be nuanced. Sirius’s CEO, Mark Bennett, distinguishes AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Source: Western Australia Department of Mines and Petroleum

Japan Finland Malaysia Canada Norway China Netherlands Singapore USA Other

TOTAL VALUE $3.63 BILLION DOLLARS

10% 2% 27% 7% 3% 37% 2% 5% 3% 4%

NICKEL QUANTITY Source: Western Australia Department of Mines and Petroleum THOUSAND TONNES

REST OF AUSTRALIA

240

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40

0

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between the wider nickel market and the sulphide subset, which holds a different set of dynamics. “There are a number of smaller producers of concentrate, and the majors with downstream processing infrastructure are continually looking for more feed. Anyone who can produce a good nickel sulphide concentrate is in a good position to market the product,” he said.

Rox Resources, who recently intersected nickel sulphide mineralization at Mt Fisher, is also hoping to capi- 48 -

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talize on the sulphide distinction. The company was able to raise A$5 million last year on the back of the excitement generated by the discovery, said Ian Mulholland, Rox’s managing director.

“For the vast majority of exploration companies in Australia, it is still extremely difficult to raise funds, and companies are forced to do so at discounts to their share price. We need to get an understanding of what we are dealing with before making significant investments.” • Industry Explorations

Image: Toro Energy Ltd

INTERVIEW

Mark Bennett

Managing Director

SIRIUS RESOURCES

Global Business Reports

if we drilled the hole and found nothing, it would be all over. The company only had A$500,000 left when we hit mineralization. It had looked so prospective all along that we did not want to allow ourselves to believe it was real; it was either graphite or one of the world’s biggest nickel deposits, and it turned out to be the latter.

Nova is one of the biggest discoveries in Western Australia over the past few years, and the success has continued with Bollinger. What is the development timeline at these prospects?

Our first step was to release a resource estimate for Nova, then recruit the best possible team to move it through to a scoping study and feasibility. We recruited the team that moved Sandfire’s DeGrussa discovery into production in record time, which we hope to repeat with Nova. Nova is in a geological structure named the Eye, which is one of several targets. We found Bollinger within five days of completing the drilling of Nova. There is now a much greater chance of finding the third big deposit; even within the Eye we have only drilled around 20% of the total area. Sirius’s near-term objectives are to move as fast as we sensibly can toward getting Nova into production. We plan to grow the company through exploration rather than acquisitions because that has been the formula to our success thus far.

Can you provide us with a brief introduction to Sirius Resources and the background to the Nova nickel discovery?

Sirius Resources was formed with the strategy to conduct high-risk exploration in previously underexplored areas. The strategy was put together in conjunction with Mark Creasy, one of the largest mineral title landowners in Australia, who is still a major shareholder. We initially gave ourselves a three-year window in which to find something or die trying, which our shareholders backed; it was this certainty that allowed us to pursue risky exploration. Sirius had been exploring the area around Nova for 18 months, until we reached the point where we had to put a hole into it, which normally spoils a good story. The target was such that AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Now that Sirius has gone from being a penny stock to a multi-million dollar valuation, what changes have you made at an organizational level to support this transition?

At the time of discovery Sirius consisted of three employees, but since then I have recruited many of my former coworkers from previous companies such as LionOre who share my philosophy.

Everyone at a management level has experience developing and taking mines into production. It has not been terribly difficult to attract talent, largely due to the nature of the mining industry in Western Australia: because iron ore is very much a logistics-based industry, those who are more interested in the technical geological side are attracted to companies like Sirius.

- 50 -

The market has reacted strongly to Sirius’s success. How are investors responding to your story, both within Australia and globally?

Investors initially treated Sirius’s story with disbelief because our share price rose so quickly. Investors around the world know about Sirius due to the share price chart without necessarily understanding what is causing the excitement; only recently have people realized that we are not a flash in the pan. Our share price has cooled in recent weeks but only because there was such a lack of good news from the junior mining community for so long that our share price kept rising ahead of what we had actually done. The same pattern happened with the Bollinger discovery, except that it polarized the investment community into very happy shareholders and ones who were disappointed that they did not invest earlier.

While the Nova discovery is huge, nickel prices have been steadily declining. How much does this uncertainty affect Nova’s development, and how strong are the fundamentals for nickel going forward?

In terms of market perception, a key challenge is that our success is linked to the price of nickel; in reality, Nova is such a robust deposit that it will likely be very low cost so that the nickel price does not matter. Even at low nickel prices, Nova should still make money, and it is sufficiently big enough to last more than one commodity cycle. There is the nickel market as a whole, but also the nickel sulphide market, which is an entirely different subset with different dynamics.

There are a number of smaller producers of concentrate, and the majors with downstream processing infrastructure who are continually looking for more feed. Anyone who can produce a good nickel sulphide concentrate is in a good position to market the product. Nova has no arsenic and magnesium, meaning that it can potentially form a very sought after concentrate that can be blended to make other products treatable.

Sirius’s story is the exception in Western Australia, where exploration expenditure has been decreasing. Why have you been able to be successful?

Industry Explorations

Global Business Reports

Exploration and development is what we do at Sirius, and our expertise is in base metals and gold. It can be tempting to chase the latest fad commodity to get market recognition, but Sirius refused to do that. There has been a trend in exploration to move away from fundamentals and into highly technical methods that may not always be that effective. As a company grows, the more experienced people are less likely to be the ones doing the exploration themselves, but in Sirius’s case the management team were the ones who were doing the exploration. We found Nova using simple techniques and exploring a new area where no one had ventured because it required a walk into the woods.

Discovering Nickel and Copper at the Nova deposit, Fraser Range

As Sirius keeps growing, how can you retain the company’s original culture and philosophy?

Sirius’s staff are some of the rare few who are both the best at what they do and have fun in the process. We want to utilize our experience gained from working in large companies and combine that with a small company philosophy. We are not just about numbers and spreadsheets; while we want to create value for shareholders, we believe we can be successful without losing our culture. Also, for a small company, we are highly focused on what we call real safety, where employees themselves are involved in their own safety, as opposed to some highly proscriptive safety systems that are meant to increase safety levels but often lead to more accidents. If you are a company that wants to grow, you must be creative, and if you want creative people who support that vision, they usually do not fit in to a traditional big company setting.

Do you have a final message for our readers?

When the markets are rosy there is a tendency for companies to create an inflated story to sell to investors, which has created a lot of skepticism from investors. Sirius decided at the outset to be honest with our story, whether it was good or bad. It may not always be an easy ride – there will always be bad news – but if you are honest about your results then people are much more supportive when the good news comes. • Industry Explorations

Our vision is to provide multiple returns on your investment through the discovery of high value mineral resources. We aim to achieve this through exploration and identification of early stage assets with high growth potential.

Sirius Resources NL (ASX: SIR) PO Box 1011 Balcatta, Western Australia 6914 T: +61 8 6241 4200 F: +61 8 6241 4299 W: siriusresources.com.au

EDITORIAL

Global Business Reports

Other Commodities

HEAVY MINERAL SANDS EXPORTS Source: Western Australia Department of Mines and Petroleum

TOTAL VALUE $842 MILLION

Fortifying Western Australia’s Mineral Base

Most of the investor attention to Western Australia is focused on iron ore and precious metals. Companies operating outside of this sphere have to overcome a distinct set of financial and regulatory challenges.

The state has some of the best-known uranium deposits in the world, but uranium production in the state has lagged far behind its potential. Australia holds more than a third of the world’s known uranium resources, yet it contributes less than 20% to the world’s current supply.

This gap could start to change, thanks to the West Australian state government’s April 2013 decision to grant the state’s first uranium mining license to Toro Energy’s Wiluna project. Toro Energy’s managing director, Dr. Vanessa Guthrie, said: “The state government’s decision in 2008 to commence uranium mining created real momentum and excitement within Western Australia’s uranium community, and was the signal that triggered Toro Energy to kick off Wiluna. The government’s re-election in March 2013 created significant certainty and predictability for the uranium sector in the state —our projects now have four more years of clear support,” she said.

However, Western Australia has no history of uranium mining, which, according to Brian Reilly, managing director of Cameco Australia, creates a fear of the unknown. Cameco, a major global uranium player, owns a portfolio of exploration-stage uranium projects in Western Australia. “Northern Territory and South Australia have been producing safely and efficiently for decades, but in Western Australia much more education needs to be done,” said Cameco’s Reilly.

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Western Australia’s rare earths industry is facing the problem of educating investors about the value of less-understood mining projects. “Some people now think the rare earth market is over.

The fundamentals are still there, but visible value is lacking,” said George Bauk, CEO and managing director of Northern Minerals, a rare earths developer.

Netherlands Japan South Africa Singapore China Taiwan Thailand United States India Belgium Malaysia Other

12% 4% 2% 2% 27% 7% 1% 27% 4% 3% 3% 8%

Petroleum Others Alumina Gold Iron Ore Nickel

24% 4% 4% 9% 55% 4%

WESTERN AUSTRALIA VALUE BY COMMODITY Source: Western Australia Department of Mines and Petroleum

2012–13 $101.8 BILLION

HEAVY MINERAL SANDS PRODUCTION VALUE Source: Western Australia Department of Mines and Petroleum

REST OF AUSTRALIA

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Industry Explorations

EDITORIAL

Global Business Reports

Rare earths in particular have a potentially exciting future in Western Australia, as China, the world’s largest producer of the commodity, recently made moves to curb its exports in order to satisfy internal demand.

Mineral sands players are hoping for a similar supply void caused by the price shock that triggered the three dominant producers to curb their production. David Harley, managing director of Gunson Resources, explained: “When the industry suffers a price shock, the big producers stop selling their product, creating an opportunity for smaller players to gain market share.”

Even though some analysts believe that demand will increase, it may not translate into investment for mineral sands projects thanks to the steep drop in zircon prices. “Now that zircon prices have retreated to around US$ 1,400 mt from highs of US$ 2,500 mt in 2012, investors perceive zircon producers with more caution,” said Peter Davies, managing director of Image Resources.

In total, Western Australia produces over 50 commodities, many of which are of global significance.

Comprising an estimated 30% of the world’s supply of lithium, Talison Lithium, through its Greenbushes mine, the state’s oldest mine still in production, has sought to further expand its importance to the global electronics market through the development of a mineral conversion plant that will convert lithium concentrate into lithium carbonate, allowing the company to directly access some of the world’s most important chemical markets such as Japan, South Korea and the USA. Although development of the mineral conversion plant is still tentative, the conceptualization of the plant drew significant interest from a number of parties: first Rockwood Holdings, and later Chengdu Tianqi Industry Group, who acquired the company for C$848 million in March, 2013.

Equally significant is Australian production of mineral sands through market leader Iluka Resources, the single largest producer of zircon globally, as well as titanium dioxide products rutile and synthetic rutile. Iluka Resource’s success has rippled across West Australia’s mining industry, creating an inIndustry Explorations

dustry for mineral sands exploration through having developed an educated investor base.

Bruce McQuitty, managing director of Sheffield Resources, which was recently named “Best Emerging Company” at Australia’s Diggers & Dealers Conference for their Dampier Mineral Sands project, said: “Iluka Resources has helped many emerging mineral sands companies in that they have provided investors with an analogy to which they can look.”

This relationship, however, has not been purely beneficial. Smaller mineral sands players have seen the economic feasibility of their projects determined by their access to market. This can involve waiting for the market to open up. David Harley, managing director of Gunson Resources, a resource exploration company with the Coburn Mineral Sands project in Western Australia, explains: “When the industry suffers a price shock, the big producers stop selling their product, creating an opportunity for smaller players to gain market share.”

- 53 -

Changes in the production figures of major mineral sands producers can lead investors to sour on the commodity in spite of its strong long-term outlook, in turn forcing mineral sands exploration companies to alter their financial strategies. Bruce McQuitty, managing director of Sheffield Resources said: “This has led Sheffield Resources to capitalize itself through options and the sale of non-core projects like that of our iron project in the Pilbara.”

Another commodity that is not usually associated with Western Australia is potash, although two companies are hoping to put their projects into production over the next few years. Russia and Canada have dominated the world’s potash market, but West Australian potash players are confident that they can break that stronghold. “It is going to be challenging to break through,” said Patrick McManus, managing director of Potash West, an early-stage potash player. “The growth of China as an iron ore market changed the iron ore supply business, and we are seeing that with the potash market now.” •

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Bruce McQuitty

Managing Director

SHEFFIELD RESOURCES

At last year’s Diggers & Dealers conference, Sheffield Resources was named ‘Best Emerging Company’.

What underscored the judging panel’s decision?

The decision to name Sheffield Resources ‘Best Emerging Company’ focused on the success that Sheffield Resources has found at its Dampier Mineral Sands Project, Sheffield Resources’ flagship property. Thunderbird, the principal deposit at Dampier, is one of the most exciting mineral sands discoveries globally.

Exploration on Thunderbird is ongoing, but already the work of Sheffield Resources has demonstrated that a premium product can be produced. For the Dampier Mineral Sands Project, Sheffield Resources is currently focused on generating a scoping study, following which an economic feasibility study will be released.

Dampier is not the sole project of Sheffield Resources; in fact, Sheffield Resources’ holdings are quite diverse. What philosophy has informed Sheffield Resources project selection paradigm?

Sheffield Resources has an excellent team of geologists who take on interestAUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

ing projects as they appear. We are not married to a single commodity. In fact, our vision for the company has shifted significantly in line with our portfolio. Several years ago, Sheffield Resources was a talc-focused company with lesser mineral sands projects. Today, Sheffield Resources is a mineral sands company with a nickel grassroots play. Beyond this we do have exposure to several mineral types, such as iron, but these lesser concessions are not the primary focus of Sheffield Resources. Many of these concessions will only be developed to scoping stage, upon which they will be sold. Our recent sale of our South Pilbara iron project to Brockman Mining reflects this strategy. Sheffield Resources will continue to take on interesting new projects when possible across a variety of mineral types, although as a long-term development strategy we believe that operating in bulk commodities is particularly rewarding.

On what time line will we see the Dampier project progress?

We recently released a major resource update for the Thunderbird deposit; in fact we doubled the total resource. More importantly, we transferred more of the resource into the indicated and measured categories: this will allow us to complete our scoping study and move to the pre-feasibility stage. A final decision at Dampier will be made regarding whether we will bring the project into production upon completion of a feasibility study.

Should we choose to take Dampier into production, we would, at the earliest, begin operations in 2017.

A second project of Sheffield Resources of particular interest to many is ‘Red Bull’, a nickel sulfide prospect located 20 km away from Sirius’s Nova and Bollinger deposits. Could you introduce us to this project?

Red Bull is an extremely interesting project for several reasons. In addition to being in close proximity to Sirius’ projects, Red Bull hosts rocks similar to Bollinger and Nova. Preliminarily, the geology at Red Bull has a similar mineral signature to Nova. We are committed to further exploring Red Bull; we are now focusing on an 8km-long suite of rocks that we believe could lead to a significant nickel discovery.

Capitalization restraints are likely to pro- 54 -

hibit the simultaneous development of a mineral sands and nickel project. This could lead us to sell Red Bull depending upon the state of the project and offer: a nickel sulfide project does not fit with our bulk-commodity profile.

Investors have responded very strongly to Red Bull: far more strongly than they have to Thunderbird, in spite of Thunderbird being further developed. This is a reflection on the commodity. Mineral sands projects do not elicit the same level of excitement as nickel discoveries; the value of a mineral sands project is more slowly built in than that of nickel project.

Retail investors admittedly struggle to understand mineral sands projects; have the recent production decreases for Iluka Resource transferred onto the way in which an emerging mineral sands company is perceived?

Iluka Resources has helped many emerging mineral sands companies in that they have provided investors with an analogy to which they can look. There has been little transference of the declines in Iluka’s production onto the prospects of the Dampier Mineral Sands Project because the project is still at an early stage, but this dynamic has affected the prospects of mineral sands just in that it is symptomatic of supply-side issues that have affected the pricing of zircon and titanium dioxide globally. Despite the current market weakness, Sheffield Resources has been able to capitalize itself through options and the sale of non-core projects like that of our iron project in the Pilbara.

We believe that this is the strategy that will employ in the future: raising capital through asset sales and, when necessary, looking to equity markets.

How has Sheffield Resources’ diversification added value to the company?

Mineral diversification has been a strong asset for Sheffield Resources, particularly for the commodities in which we work.

Mineral sands projects are appealing to institutional investors, who better understand these types of projects than retail investors. Instead, retail investors are attracted to iron and nickel projects. This has provided Sheffield Resources with multiple legs to stand upon. This is a common model for those operating in mineral sands precisely for these reasons. • Industry Explorations

INTERVIEW

Global Business Reports

Vanessa Guthrie

Managing Director

TORO ENERGY LTD

Could you provide an update to your company’s activities? How close is production at Wiluna?

Toro Energy’s strategy at Wiluna is to build a project that is technically robust and government approved so when the market is ready, we can secure partners and contracts in place and are ready to bring the project into construction. In 2013 most of the technical de-risking was completed. Following a trial mine pit in 2010, we ran a pilot plant with a full commercial-scale hydrometallurgical circuit in 2011. From there we went into the definitive feasibility stage, which has provided engineering studies of processing plant. During 2013, we acquired the Lake Maitland deposit from TSX-listed Mega Uranium, which is the sixth deposit in the regional resource. Following this, we re-ran a Mining Scoping Study and Preliminary Economic Assessment, which established new costs of A$315 million in capital expenditure at $29/lb to $31/lb.

We have also been working through the permitting and Traditional Owner agreements since October 2009; in 2013 we received State and Federal Ministerial approval for initial mining, and the processing facilities. We have now referred Industry Explorations

two further deposits to government for approval. This is expected to take around two years. During this process, we will focus on establishing a financing plan to take Wiluna to bankable feasibility; we will be working on off-take contracts with potential customers and project financing with strategic partners. We hope to commence construction as soon as the uranium market shows signs of recovery in the second half of the decade.

Geographically speaking, where are you looking for off-take agreements?

Approximately half of our off-take strategy may be dedicated to a joint venture partner. Very often in these long-term, large capital projects, you would expect a potential strategic partner to participate in equity as well as production off take. Japan, Korea and China all have current requirements for uranium to power nuclear plants, with China driving the growth in demand over the next five years. India has entered a nuclear safeguards agreement negotiation with Australia, which will open up potential trade in that country. India might not become an available market in time for the start of Wiluna, but this would not preclude us from doing business with it in future.

The remaining production will likely be through off-take contracts in Europe and the United States.

Toro Energy also has its Theseus project in Western Australia and recently secured a further $10 million placement from RealFin Capital Partners. What will these funds be used for?

We are delighted to welcome RealFin’s interest in Toro and our plans for development. Our plan in 2014 is to continue to progress the Wiluna project through drilling to reserve status, completion of engineering studies and of course to further our negotiations with a potential strategic partner. While Wiluna is our flagship, however, we want to continue work on Theseus and our tenements in the Northern Territory. Theseus, in particular, is a fabulous new uranium province with very high potential for in-situ-recovery deposits. Our interest in Namibia is as a joint venture partner of Deep Yellow, which is the operator there; our core focus is in Australia.

- 55 -

In light of decisions by BHP Billiton to shelve Olympic Dam expansion and the closure of Paladin’s Kayelekera in Namibia, how would you assess the climate for uranium explorers and producers in Western Australia?

The Western Australian government’s decision in 2008 to allow uranium mining created real momentum and excitement within Western Australia’s uranium community, and was the signal that triggered Toro Energy to kick off Wiluna. There have been some fabulous discoveries in Western Australia in this time. The government’s re-election in March 2013 created significant certainty and predictability for the uranium sector in the state: our projects now have four more years of clear support. Other parts of Australia are also opening up to uranium. The change of government in Queensland has really changed the climate for uranium exploration and mining, and activity is certainly picking up there. The New South Wales government has also shifted its policy to allow exploration for uranium; all jurisdictions except Victoria and Tasmania are now producing, exploring for, or actively supporting uranium, which can only signal great things for the sector. Australia holds over a third of the world’s known uranium resources, yet it contributes less than 12% to the world’s current supply: the shift in policy will now encourage the sector to realize its potential.

There is a sentiment amongst some politicians in Australia that the mining boom is over. Given the high costs in Western Australia, how competitive can the state remain in the global mining economy?

Australia has been recognized as a highcost country for doing business, however we are seeing a shift in cost base with more services becoming available. The huge iron ore and oil and gas projects that were soaking up a lot of labor and construction resources are now moving through the cycle, and opening up availability for others.

For the uranium industry, regulatory stability and the security of off-take agreements are most important to the market, and we position our cost structures to reflect the most efficient use of our funds. Ours is a very long term and strategic industry: nobody invests in nuclear power without a 40 to 50 year horizon for it. • AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Image: Doray Minerals Ltd

ANALYSIS

Global Business Reports

Promoting Exploration

More incentives needed

Exploration expenditure has dramatically reduced in Australia over recent years. In 2002, Australian exploration for non-bulk commodities accounted for around 21% of global mining exploration, yet in 2012 it was closer to 12%.

This trend is not echoed in other jurisdictions: Canada, for example, has seen an increase in exploration activities of 4% over the same ten-year period.

According to estimates, the current level of producing mines and those close to development will sustain the mining industry in Western Australia for another 15-20 years. With less greenfields exploration activity, the future beyond 2030 is murky.

There are a number of reasons why exploration expenditure has declined in Western Australia, according to Reg Howard-Smith, CEO of the Chamber of Minerals and Energy of Western Australia (CME), the main representative body of the resources sector in Western Australia. “The high cost of exploration in the state is a significant problem: over the last few years Western Australia has become one of the most expensive regions in which to operate.

There is also a lot more competition on a regional level, causing many exploration companies to find greater opportunities in Africa.”

Companies who stay Western Australia face a costly approvals process that eats into their precious exploration capital. Prospecting and exploration applications in the state dropped by almost 50% in the fourth quarter of 2012, the lowest level since 2009. Industry representatives such as the Association of Mining and Exploration Companies (AMEC) have called for a more streamlined process and less duplication Industry Explorations

amongst various departments to help junior miners secure licenses.

Another option is for the federal government to examine a flow-through shares scheme similar to Canada’s, where mineral exploration companies can pass tax breaks for exploration onto investors.

Although the Australian government has examined the scheme in the past, no such incentive exists despite backing by industry representatives.

“The CME supports greater incentives for exploration, such as flow-through shares, but it is difficult for the federal government to support a similar scheme in Australia since there has been major investment into the iron ore sector, making it difficult to justify exploration incentives,” explained Reg Howard-Smith of the CME. For those investors who appreciate the ongoing potential in Western Australia, the market has rewarded them handsomely. Case in point is Sirius Resources’s Nova nickel-copper discovery in August 2012. With just over A$1 million in cash, the company managed to uncover an entirely new deposit in the Albany-Fraser Range. The resource comprises of over 10 million mt of 2.4% nickel, 1% copper and 0.08% cobalt. “The target was such that if we drilled the hole and found nothing, it would be all over. The company only had A$500,000 left when we hit mineralization. It had looked so prospective all along that we did not want to allow ourselves to believe it was real; it was either graphite or one of the world’s biggest nickel deposits, and it turned out to be the latter,” said Sirius’s managing director Mark Bennett.

Since the Nova discovery, an almost inconceivable stream of good news has - 57 -

emerged from the project as further drilling revealed a similar deposit to Nova, which Sirius has named Bollinger.

At press time, the company has over A$60 million in cash and is actively drilling to advance the project toward feasibility.

A similar story is Sandfire Resources, whose share price in mid-2009 was trading at around A$0.10 when it announced it had discovered a high-grade VMS copper-gold mineralization at their DeGrussa project. In just over two months, Sandfire’s share price jumped to A$2.27. The company shipped the first load of copper concentrate in December 2012 and is now valued at just under A$900 million.

Both Sirius and Sandfire’s stories are bright spots for an industry that is suffering from a lack of available capital and increasing red and green tape – Sirius in particular, because it happened so recently and in much more difficult economic conditions. Their success signals a new era for Western Australian explorers, opening up previously underexplored or even virgin regions and highlighting the need to keep drilling despite challenging circumstances.

Only then will the capital markets follow suit and return Western Australia to the dominant position it once enjoyed as a leading destination for exploration enthusiasm. •

This article was taken from GBR’s weekly newsletter and blog, the GBRoundup. To subscribe to this newsletter, or view other articles and exclusive interviews, please visit gbroundup.com.

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INTERVIEW

Robert Edel

Partner

DLA PIPER AUSTRALIA

Australian mining is increasingly international; over half of the capital raised here is earmarked for foreign projects. What type of legal issues does this present and how can DLA facilitate proceedings in this regard?

There are nearly 300 Australian companies operating in Africa: from miners to consultants, engineers to law firms. As such, Australia and its companies have become a major conduit for foreign investment into Africa, not only from here but also from North America and Asia; Australian companies serve as a vehicle for entry into Africa. This is due in large part to the well-established foothold that Australian miners have in more than 40 countries across the continent.

In this regard, legal issues fall into one of two categories: those arising from the international legal structures governing the location of a project and those arising from the legal structures of the country in which a company is domiciled. Internationally, Australian miners’ projects are often subject to English, Australian, American, or South African law, or that of another jurisdiction depending upon the contractors they use. Cross-border legal coordinaAUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Global Business Reports

tion must take place. We also work to ensure that local structures, such as labor, local content, environmental and tax requirements are understood and met. The similarities found between African and Australian legal structures are quite interesting.

To better meet the needs of our clients, DLA partners either with branches of our own firm around the world, or groups that have the DLA ‘stamp’ (of which there are 13 in Africa). We also have relationships with 27 law firms throughout the continent and partner with them for service delivery. From the client side, we offer streamlined approached to project management; only one phone call is required, from which DLA provides a full service package through its network of firms and partners.

There is a common perception that exploration has become difficult to carry out within Western Australia, with no flow-through tax system or incentivizes scheme in place for explorers. How is exploration in Western Australia being rehashed?

The Liberal Party has indicated that they may reevaluate the current incentive scheme for resource exploration companies and see whether a flow-through scheme should be implemented. A perception exists that Australia has become a generally expensive place to operate; this is largely true, and stems from the frenetic nature of activity in the industry. However, this is changing; the cost of services is starting to decrease.

Tax-wise, Australia is still in the bottom quartile of OECD countries and is both stable and transparent. This should also help change this perception.

One major obstacle for those developing a mine is found in Australia’s complex licensing process. Can we expect to see this streamlined with under an Abbott administration?

Although neither party has promised to change the mine licensing process, it is a major issue that needs to be addressed. It will be a big job, requiring coordination across all three layers of government to identify areas of overlap.

There have been a number of proposals to streamline the approval process; it is - 58 -

just a matter of making sense of them now. Though there is a large number of approvals required, they are all necessary and worthy; environmental, land title and community approvals are all vital to the transparent operation of the mining sector, but they can be done quicker and more efficiently.

Can you comment on former Minister Ferguson’s comments about Australia’s mining boom being over?

I would have to agree that the boom is over; having said this, it is by no means a scenario in which the market crashes.

Instead, we are poised to return to a relatively stable investment environment.

The general consensus has been that the industry here has come off the bottom in terms of investment. The past five years have been the toughest we have seen in the industry, but we are starting to see the first tips of green shoots coming through. M&A activity has sustained us until now, and we are now seeing hints of IPOs and capital placement coming through. There has also been a healthy amount of movement in the share prices of mining companies; BHP, Rio, and Xstrata are seeing significant increases in their share prices as money flows from the defensive sectors back into mining. Market movement always starts at the top and, if history is any indicator, we will see a flow-down effect in 2014 and 2015.

Have you noticed a change in the profile of investors showing interest in Australia mining industry occur over the course of the past few years?

We have certainly seen a change in our average investor profile; Australia’s mining finance scene is becoming increasingly international. Korea has been very active in acquiring assets in coal and iron ore, and India has been particularly active in the sector as well. We are also seeing more private equity firms out of the US, Canada, Europe and Asia looking at Australia. Australia is a jumping point for mining jurisdictions around the world; investing in a company here will provide exposure to assets on several continents. •

Industry Explorations

INTERVIEW

Global Business Reports

Trent Lisle

Director

LAZARD

Could you provide a brief introduction to Lazard’s presence in the Australian market?

Lazard’s operations in Australia were effectively formed through the 2007 acquisition of Carnegie Wylie, a boutique advisory business that was active in some of the largest transactions within the market. These included the acquisition of Patrick by Toll, the acquisition of WMC by BHP, the sale of Coles to Wesfarmers and the sale of Alinta to Singapore Power/Babcock & Brown. In 2010, we established our Perth office to increase coverage of the mid-tier mining and oil and gas sectors, as well as the service companies which support the resources sector.

Since this time we have been involved with a number of transactions in the resources space. In 2012, we advised BHP on the sale of Yeelirrie to Cameco for$430 million, St Barbara on its acquisition of Allied Gold and Gloucester on its merger with Yancoal Australia. We also helped Fortescue negotiate the settlement of its unsecured note with Leucadia for $715 million, which was effectively an expensive royalty that would have otherwise cost Fortescue Industry Explorations

$400 million per year based on current iron ore prices. More recently we’ve been assisting Fortescue with the sale of a minority interest in their port and rail infrastructure assets.

As the market has evolved over the course of the past year, how has Lazard seen demand for client services change?

When we established our Perth office in 2010, the financial service sector was smaller than it is currently. A slew of broking businesses and local corporate advisories existed, but the market was less crowded than it is today. In the past two years, a number of the global investment banks have either established local offices in Perth or are servicing the market quite effectively on a ‘FIFO’ basis. However, it has to be said that despite the ability to maintain relationships over the telephone, financial advisory is a relationship business and there is still a strong preference by local clients to have a local adviser.

While M&A volumes have fallen, certain sectors have remained strong such as infrastructure and government advisory and we continue to see investment banking activity in the form of equity raisings, especially given recent increases in commodity prices, and refinancing or restructuring mandates.

There has also been a large amount of defense advisory work, wherein businesses are ensuring they are prepared in the event they receive an opportunistic proposal that undervalues the company. However, in order for M&A activity to return in any meaningful way, there needs to be a sustained period of stability as recent volatility in commodity prices has resulted in an increase in bid-ask spreads and has been a major impediment to transactions.

What alternate financing strategies have you seen emerge in response to tough times within the market?

There has traditionally been a general reluctance by the Australian banks to support project finance, particularly in relation to projects held by small/midcap companies. As a result, issuers have increasingly looked to the US markets for debt funding, with significant issuance of USPP, high yield notes and, - 59 -

more recently, syndicated term loans such as those issued by Fortescue and Atlas last year.

In addition, the recent dislocation between equity prices and commodity prices has forced companies to look at non-traditional funding alternatives.

These include selling interests in projects and/or non-core assets. Divesting or outsourcing non-process infrastructure assets such as port, rail accommodation and power assets is another source of capital being actively pursued by mining companies.

However, with the vast majority of smaller mining companies unable to access funds in the near-term to develop their projects or fund exploration, they are currently focused on maximizing cash flow from operations and minimizing expenditure in order to ensure their survival until traditional financing sources become available again.

Western Australian resource exploration is increasingly international.

This requires those investing in these projects to understand subjects like political risk in Ghana or community relations in Peru. How sophisticated is Australia’s investor base?

The Australian retail investor’s understanding of emerging market risk has improved significantly over the course of the past several years, however, the reality is that many continue to misunderstand regional-specific issues.

The recent unrest in the North of Mali is a good example. The area affected is relatively small and sparsely populated. However, a number of mining companies that operate in the South of Mali have seen their share prices significantly impacted by general fears surrounding the region despite the fact they haven’t lost a day of production from their mines. These types of misunderstandings even exist among institutional investors. This being said, while there has been greater volatility in the share prices of ASX-listed mining companies with projects in West Africa and Asia, they are currently trading broadly in-line with their domestic peers. •

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

Into the Future: Final Thoughts, Index and Credits

“The Department of State Development believes that the future of Australia’s service sector lies overseas. Europe has been one of the world’s most importance regions for the manufacturing and development of precision equipment.

There is no reason why Australia cannot replace Europe in this regard. The difficulties that come with operating in Australia, such as remote operating environments and high production costs, have necessitated innovation on the part of Australian miners. This dynamic has led to the development of very high caliber Australian equipment.”

- Giles Nunis, Deputy Director General, Government of Western Australia, Department of State Development Image: Earing Energy

FINAL THOUGHTS

Global Business Reports

“

“Any changes to incentivize green-field exploration in Australia’s would definitely be a positive.

The new Federal government is supporting a Canadian style flow-through tax credit on shares, which will come into effect in July 2014. At present, the main incentive that resource explorers have in Western Australia is the Exploration Incentive scheme that provides cofunding for drilling programs that meet certain criteria. As a general rule, the majors have withdrawn from exploration and are following an M&A strategy for new deposits; this has left the mid-sized and junior companies to take up the exploration slack, but there is not currently the appetite in the investment fraternity to fund greenfield exploration. Someone needs to discover the mines of tomorrow, so a solution has to be found to drive forward the industry and return investor confidence to the market.”

- Richard Bevan, Managing Director, Cassini Resources Ltd

“CHINT believes that by entering into the Australian market and winning over Australian miners that the company will be able to more easily approach foreign markets. Businesses unsure of what a brand connotes, as is often the scenario with Chinese manufacturers, look to the clients that one already has under their belt prior to agreeing to conduct business.

Australia is globally recognized for the high standards to which its miners hold their service providers. By earning their trust, CHINT believes that we will in fact be able to fortify our position within other mining jurisdictions more easily: be it in Scandinavia or South America.”

- Jerry Jia, Managing Director, CHINT

“The mining industry of Western Australia has observed a huge change in the type of projects that are now in development. Projects within the mining industry are slowly shifting from construction to production. The number of mines in construction is expected to peak in 2013; however, consultancies have already felt the full force of this change. Many of the large infrastructure projects that once drove business have past; this has been the case for mine planning services as well. Those services that must be rendered on an ongoing basis, such as those related to tailings and environmental management, remain in demand.”

- Ian Lipton, Principal, Golder Associates

“Ten years ago there was little foreign capital flowing into Australia’s natural resource space.

This has changed: today Chinese capital backs a variety of projects, ranging from hematite to rare earth projects. It has been great to see this ongoing interest in the sector… The outlook for the sector is very strong. We have a long way to go in what is a very strong resource cycle. This is not to say that there are not ups or downs along the way, simply that ultimately the fundamentals underscoring the industry are strong.”

- Grey Egerton-Warburton, Head of Corporate Finance, Hartleys AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

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Industry Explorations

FINAL THOUGHTS

Global Business Reports

“The Queensland Department of Mines is quite active in developing industry best practice standards, but there work has focused on collision avoidance and catastrophic risk minimization. They tend to focus less on process optimization systems, such as tracking systems. The industry’s standards are heavily influenced by the safety standards of the United States and as a result of this we will likely see several preventive measures mandated that are not in effect yet. One of these mandates could be for mines to include proximity detection systems within them, which could lower the accidents related to the operation of heavy equipment.”

- Andy Sheppard, Executive General Manager, Minetec

“Certainly, overseas markets are playing a crucial role for Australian service companies and Mining Plus is not an exception. Historically, we had 50% of work come in from Australia and 50% from overseas. Throughout 2013 the ratio has changed, and about 20% of the work came from Australia and 80% came from other regions around the world. We definitely see a greater proportion of work coming from other jurisdictions, and this factor certainly enables service companies to grow internationally. However, Western Australia is still a fantastic place to do business. There is still a lot of red tape and green tape, but traveling, getting equipment and setting up mine sites is still very easy; Australia’s infrastructure is excellent. This creates a lot of benefit for resource exploration and short-term development companies.”

- Ben Auld, Managing Director, Mining Plus

“The mining boom in Australia has just taken a bit of a deep breath, but is definitely not over.

China is still going to grow at a rate of 7% to 8% and the demand for iron ore and copper is still decent enough to provide a good market for Western Australian products. Things may slow down a touch, but they will keep on going. It is not a question of the boom ending, but more so of the changing face of mining in Australia, and where it goes. Many of our mines in WA are deep, old, and have not maintained operating costs low enough to be kept alive.

Those interested in mining should not lose faith based on recent market trends and reports.

The strength of Australian mining is in the country’s past and is found in the years of expertise that Australian miners have in working under difficult operating conditions.”

- John Hearne, General Manager Mining, Coffey

“The mining market is certainly less buoyant than a couple of years ago, and commodity prices have come down in the last six to nine months. However, some of the large projects – especially on the LNG side – are coming to an end, which is providing some cost relief. Coal is still very much in the doldrums, but more optimism surrounds iron ore, gold and base metals, with a feeling in the industry that the worst is over. Good projects are still being discovered and pushed. However, the market is in the unusual position of banks, especially Westpac, being keen to finance projects but equity markets, which would generally have stronger risk appetite, having been too depressed for the last year or two to raise their portion of the funds. This is creating the need for alternative financing techniques.”

- Patrick Cocquerel, Head of Natural Resources, Global, Westpac Industry Explorations

- 63 -

”

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

INDEX

Global Business Reports

MINING GOVERNMENT, ASSOCIATIONS AND ORGANISATIONS Association of Mining and Exploration Companies (AMEC) Australia-Africa Mining Industry Group Chamber of Minerals and Energy of Western Australia (CME) Department of State Development Western Australia Department of Mines and Petroleum of Western Australia

25, 27, 57, 66 21, 27, 57, 66 61 22, 24, 26, 66

MINERAL PRODUCERS BC Iron Ltd Cameco Corp.

Doray Minerals Ltd KalNorth Gold Mines Ltd Korab Resources Ltd Lachlan Star Ltd Mawson West Ltd Norton Gold Fields Ltd Talison Lithium Pty Ltd Tiger Resources Ltd

38 52, 59 37, 40, 41, 43, 46, 47

29, 41, 42 53

MINERAL EXPLORERS AND PROJECT DEVELOPERS A-Cap Resources Ltd Alchemy Resources Ltd Aspire Mining Ltd Auricup Resource Ltd Australia Minerals and Mining Group Ltd Azure Minerals Ltd Base Resources Ltd Breaker Resources NL Brockman Mining Ltd Cassini Resources Ltd Coziron Resources Ltd Encounter Resources Ltd Energy and Minerals Australia Ltd Enterprise Metals Ltd Equatorial Resources Ltd Ferrowest Ltd FYI Resources Ltd Gascoyne Resources Ltd Golden Rim Resources Ltd Golden West Resources Group Ltd Gunson Resources Ltd Heron Resources Ltd Highfield Resources Ltd Image Resources NL Impact Minerals Ltd Jindalee Resources Ltd Kibaran Resources Ltd Manas Resources Ltd Manhattan Corporation Ltd Matsa Resources Ltd Millennium Minerals Ltd Montezuma Mining Company Ltd Northern Minerals Ltd Padbury Mining Ltd Paynes Find Gold Ltd Peak Resources Ltd Phoenix Gold Ltd Pluton Resources Ltd Poseidon Nickel Ltd Potash West NL Radar Iron Ltd Ramelius Resources Ltd Red Mountain Mining Ltd Reward Minerals Ltd Rox Resources Ltd Sheffield Resources Ltd Siburan Resources Ltd Sirius Resources NL South Boulder Mines Ltd Terrain Minerals Ltd Thundelarra Ltd Toro Energy Ltd Trafford Resources Ltd Triton Minerals Ltd Tungsten Mining NL Venturex Resources Ltd

34 54 62

29, 41, 43, 45 53 53

48 53 38, 39 34 48 53

48 48, 53, 54 27, 45, 48, 50, 51, 54, 57

52, 55

ENGINEERING, CONSULTANCY AND PROJECT MANAGEMENT 360 Environmental Ltd AMC Consultants Byrnecut Coffey International Ltd Como Engineers Pty Ltd DDH1 Drilling Global Surface Mining Golder Associates Hansen Environmental Services Hardrock Mining Consultants HGS Australia Exploration Services Mineral Engineering Technical Services Mining Plus Orelogy Proteus Engineers (a Tetra Tech company) AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

29, 34, 35 63

62

35, 63

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Industry Explorations

Global Business Reports

ENGINEERING, CONSULTANCY AND PROJECT MANAGEMENT QG (formerly Quantitative Group) Sinclair Knight Merz Snowden Group Xstract Mining Consultants EQUIPMENT, SOFTWARE AND RECRUITMENT APac Energy Rental China National Coal Mining Equipment Co. Ltd CHINT Davey Bickford Deswik Downing Teal ITC Global JDA Applus Velosi Minetec Communications Remote Control Technologies Rhino Water Tanks Australia Scotford & Fennessy LEGAL AND FINANCIAL SERVICES Acuity Capital Australian Securities Exchange (ASX) Azure Capital Partners BDO BNP Paribas Denham Capital DLA Piper EY Gresham Partners Hartleys KPMG Lavan Legal Lazard Patersons Securities PCF Capital Group PwC Sirona Capital Westpac Bank

INDEX

29, 31

62

29 63

30, 33, 42, 46, 66

58 62 26, 33 59 26, 28 32 26, 63

POWER GOVERNMENT, ASSOCIATIONS AND ORGANISATIONS Australian Energy Regulator Clean Energy Council Energy Supply Association of Australia ELECTRICITY GENERATION AND PROJECT DEVELOPMENT Acciona Energy Cougar Energy Ltd Enviromission Ltd Eraring Energy Greenearth Energy Ltd Kuth Energy Lightway Solar Pacific Hydro Sucrogen Australia Pty Ltd Visy Pulp & Paper Wasabi Energy Ltd TECHNOLOGY, EQUIPMENT AND CONSULTANCY Alstom Balance Utility Solutions Clenergy Diamond Energy DPA Solar Energetics First Solar Freestyle Technology Fronius International GmbH Harmonic Energy Kourispower Pacific Energy Parsons Brinckerhoff Senvion SE (a Suzlon Group company) Siemens Simons Green Energy Vestas Australia W채rtsila DISTRIBUTION, TRANSMISSION AND SMART GRID SOLUTIONS EnerNOC Landis+Gyr Multinet Gas PowerSense Transgrid United Energy FINANCIAL, TRADING AND LEGAL AMP Capital Clean Energy Finance Corporate Emerging Energy Solutions Group Energy Watch Green Energy Trading

66 7, 10, 66 66

12

12

13, 15

7 12,, 18 19

15, 17 15, 16 12, 13, 14

11, 15

This list contains those companies interviewed during the course of research for this publication and as such represents only a selection of the companies operating in the power and mining industry of Australia. It should not be considered a comprehensive guide. GBR holds an exclusive and extensive oil and gas database for Australia and the wider region. For further information on database access packages, please contact info@gbreports.com or call +44 20 7612 4511.

CREDITS

Global Business Reports

EDITORIAL TEAM Power research conducted by: Senior Project Director: Katie Bromley (kbromley@gbreports.com) Senior Journalist: Angela Harmantas (aharmantas@gbreports.com) Exploration and Mining research conducted by: Senior Project Director: Katya Koryakovtseva (k.koryakovtseva@gmail.com) Senior Journalist: Angela Harmantas (aharmantas@gbreports.com) Journalist: JP Stevenson (jpstevenson@gbreports.com)

Executive Editor: Barnaby Fletcher (bfletcher@gbreports.com) Graphic Designer: Gonzalo Da Cunha (gonidc@gmail.com) Regional Director: Sharon Saylor (ssaylor@gbreports.com) General Manager: Agostina Da Cunha (agostina@gbreports.com)

For more information about GBR, please email info@gbreports.com. For updated industry news from our on-the-ground teams around the world, please follow us on Twitter @GBReports or subscribe to our newsletter at gbroundup.com.

Additional copies of this book or our other publications can be ordered through Elif Ozturk (elif@gbreports.com)

THANK YOU GBR would like to extend our thanks to the following organizations for the assistance provided during the research of this publication:

Association of Mining and Exploration Companies (AMEC) www.amec.org.au Australian Energy Regulator (AER) www.aer.gov.au Australian Securities Exchange (ASX) www.asx.com.au Chamber of Minerals and Energy of Western Australia (CME) www.cmewa.com Clean Energy Council www.cleanenergycouncil.org.au Energy Supply Association of Australia www.esaa.com.au Department of Mines and Petroleum of Western Australia www.dmp.wa.gov.au We would also like to express our sincere gratitude to all the companies, associations and individuals who took the time to provide their insights into the market.

AUSTRALIA POWER & WESTERN AUSTRALIA MINING 2014

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Industry Explorations