Presentation to Ministry of Lands and Resources

(MOLAR) , Beijing China

November 30, 2005

Keith N. Spence, Co-Chairman
Canadian Institute of Mining, Metallurgy and Petroleum
Special Committee on Valuation of Mineral Properties
(CIMVal)

President and CEO, Alliance Pacific Resources Inc
CANADIAN (CIMVal) STANDARDS
AND GUIDELINES
FOR VALUATION OF MINERAL
PROPERTIES
2
Items to be Discussed


Background on Keith N. Spence
Valuation vs Evaluation
International Scene
What is Canadian CIMVal
Scope and Limitations
Definition of Value
Valuation Principles
Qualification of Valuators
Valuation Reports
Key Issues
Valuation Approaches and Methods
Some Problems with Valuations

3
Background on Keith N. Spence

Co-Chairman & Co-Developer of Canadian Valuation Standards
President and CEO of Alliance Pacific Resources, an exploration
company with operations in Xinjiang, China
Geologist - Hons BSc, MBA; Both University of Western Ontario,
London, Canada
Investment Banker for 14 years, specializing in Mining Finance,
Project Finance and Corporate Finance.
Investment Banker at Royal Bank, Bank of Montreal, Bank of
Nova Scotia and Export Development Bank
Financed or evaluated projects in Chile, Peru, Argentina, Bolivia,
Mexico, USA, Africa, Australia, Thailand, Indonesia, China and
Canada.
CIM Distinguished Lecturer
CIM Fellow Award
President, Mineral Economics Society
Board of Directors, PDAC (Canada)
International Advisory Board , CHINA MINING CONFERENCE
4
Valuation vs. Evaluation of a
Mineral Property
Valuation - estimation of the value or worth of the mineral
property in dollars or equivalent-

Question What is the value or worth of the Property ?

Evaluation - economic assessment of the mineral property
generally for an investment decision, for example, a
feasibility study

Question Is this project econonically viable ? Is it
economic to develop this project?

5
The International Scene

Canadian CIMVal Standards & Guidelines
- Developed and maintained bv Canadian Institute
of Mining, Metallurgy & Petroleum (CIM)
- CIM also maintains the rules for Classification of
Reserves; eg Inferred Resources to Reserves
- Required by Toronto Stock Exchange (TSX-V)

Australian VALMIN Code
- Similar to CIMVal, supported by AusIMM

South African proposed SAMVal Code
- Similar to CIMVal, supported by SAIMM




6
The CIMVal Document

The document consists of two parts:


Standards (mandatory)

Guidelines (highly recommended)




7
Scope and Limitations
Reasons for valuation: mergers and acquisitions, non
arms length transactions, IPO pricing, listing support,
support of audited financial statements, support for
property agreements, fairness opinions, determination of
vendor considerations, litigation, expropriation, insurance
claims

Valuations of mineral properties are required by regulatory
bodies under certain circumstances. CIMVal Standards is
recommended to be followed, for valuations of mineral
properties required by regulatory bodies

Fairness Opinions based on valuation of mineral
properties should also be governed by the CIMVal
Standards



8
Scope and Limitations Contd
Limited to valuation of mineral properties, but do not cover
valuation of corporations that hold the mineral properties

Mineral property means surface/subsurface mining rights;
including various types of claims, development or mining
licenses, prospecting permits, mining leases

Cover valuation of metallic and non-metallic mineral
properties, including industrial minerals, placers, aggregates,
coal, oil sands and uranium

CIMVal Standards do not cover oil and gas properties (Separate
Standards for Valuation)


9
Definition of Value
Fair Market Value (FMV) is the standard of value.

Key elements of FMV are as follows:
Both seller and buyer are willing and not under compulsion
to act
The transaction is at arms length
Both seller and buyer are informed or have reasonable
knowledge of the relevant facts
Valuation should be based on a given point in time


Other types of value include; replacement value, salvage
value, book value, depreciated value, net asset value,
assessed value, insured value, etc. - But not recommended
for CIMVal purposes.


10
Valuation Principles
Materiality
- inclusion or omission of information
that might result in different conclusion of value


Transparency
- information used (or excluded), the
assumptions, methodology etc, must be set out
clearly, along with the rationale


Independence
-the valuator must to be independent of the
commissioning entity

11
Valuation Principles Contd

Competence
-the valuator must be appropriately
qualified and experienced to conduct the
required valuation

Reasonableness
-other appropriately qualified and experienced
valuators would value the property at
approximately the same range


12
Qualifications of Valuators
Concept of Qualified Valuator (QV) :

Professional individual with at least 5 years
mineral property valuation experience
Experience relevant to the subject property
Member of an approved self-regulatory
professional organization, such as
Professional Engineers or Geoscientists, or
CICBV

Commissioning entity must establish that the
QV is qualified, competent and independent



13
Qualifications of Valuators
Contd

QV is responsible for the overall valuation and
the valuation report

QV may be assisted by Qualified Persons
(QP), as defined in Canadian Securities
Regulations

All technical input to the valuation is subject to
data verification by a QP


14
Valuation Reports
A QV is ultimately responsible for:
preparation of the Valuation Report and its
conclusions
adhering to the principles of materiality,
transparency and reasonableness including
technical input

An approved technical report can be appended to
the valuation report

All mineral reserve and mineral resource estimates
must be disclosed and discussed in the valuation
report



15
Valuation Reports Contd
List factors, critical issues, key risks and assumptions

Discuss all valuations within the last 24 months

Certificates of Qualifications for QV and QP(s)

Statement that the valuation complies with the Standards
and Guidelines in their entirety

Site visit should be undertaken or explain why not

Effective date of the valuation

16
Valuation Standards
- Key Issues
CIMVal Standards mandatory
The Standards are considered to be mandatory but the
guidelines are highly recommended, and allow for
professional judgement

How much valuation experience should a QV have?
The Standards state five years valuation experience

Is a business entity allowed to sign the Valuation Report or
just an individual QV?
The CIMVal Standards allow a business entity as well as an
individual to sign the report but a QV must sign a Certificate
of Qualifications
17
Choice of Valuation Approaches
and Methods
QV has responsibility for choice of valuation
approaches and methods with explanation

All three generally accepted valuation
approaches must be considered and more than
one should be used (at least two must be used)

Valuation must be reported as a range of values
to reflect subjectivity and uncertainty of the
valuation process
18
Valuation Approaches
Three generally accepted approaches:
Income approach - based on principle of
anticipation of benefits, usually DCF
Market approach based on principle of
substitution (also called Sales Comparison or
Comparable Transactions)
Cost approach based on principle of
contribution to value
Valuation approach depends on the stage of
exploration or development of the property

19
Valuation Approaches and
Stages of Mineral Properties
VALUATION
APPROACH
EXPLORATION
PROPERTIES

MINERAL
RESOURCE
PROPERTIES
DEVELOPMENT
PROPERTIES
PRODUCTION
PROPERTIES
Income No In some cases Yes Yes
Market

Yes Yes Yes Yes
Cost Yes In some cases

No

No

20
Primary Valuation Methods
Income Approach
Discounted Cash Flow Method - very widely used
Real Options Method not widely used but gaining
rapidly in acceptance (some experts suggest its an
Approach on its own)
Market Approach
Comparable Transactions Method widely used
Option Agreement Terms widely used
Cost Approach
Appraised Value Method widely used but not
accepted by all regulators
Geoscience Factor Method (developed by Kilburn)
not widely used too subjective
21
Secondary Valuation Methods
Market Approach
Value per unit of metal widely used rule of
thumb. Used to normalize or cross - check
comparables
Market Comparables Market capitalization
of company holding the mineral property
Each property must be examined individually.
Similar Properties ; similar Value.
22
Mineral Resources and
Reserves
Mineral Resource - a mineral deposit for which
quantity (tonnes) and quality (grade) can be
estimated. But not demonstrated to be
economic.
Measured - highest confidence category
Indicated
Inferred - lowest confidence category

Mineral Reserve - that part of the mineral
resource that can be extracted economically.
Proven - higher confidence category
Probable - lower confidence category
23
Use of Mineral Resources in
Income Approach
Generally Acceptable Practices
Use of all proven and probable mineral reserves
Use of measured and indicated mineral resources in
the following circumstances:
Mineral resources are current and confirmed by a QP
Mineral reserves are mined ahead of resources in DCF
QP estimates or confirms technical parameters in DCF
QP states that the mineral resources in the DCF are likely to
be economically viable
Recognize higher risk of using mineral resources by
adjusting appropriately (eg: probability factors)
24
Use of Mineral Resources in
Income Approach Contd
Use of inferred mineral resources:
With great care, but
Not if they are the dominant resource category
Inferred resources should not be used to make the property
economically viable
Any use must be justified in the valuation report and treated
appropriately for the substantially higher risk and uncertainty
Reserves and other resource categories are mined ahead of
inferred resources in the DCF model
Use of potential or hypothetical resources is not
acceptable
25
Some Problems with Valuations

Use of unacceptable or dubious methods
Misapplication of acceptable methods
No explanation or justification for methods
used
Lack of transparency
Statement of CIMVal compliance when
actually not compliant

Thank you !!
Presentation to Ministry of Lands and Resources
(MOLAR) , Beijing, China
November 30, 2005

Keith N. Spence, Co-Chairman
Canadian Institute of Mining, Metallurgy and Petroleum
Special Committee on Valuation of Mineral Properties
(CIMVal)

President and CEO, Alliance Pacific Resources Inc
CANADIAN CIMVal STANDARDS
AND GUIDELINES
FOR VALUATION OF MINERAL
PROPERTIES