Canadian Mining Eye struggled in Q2 2017

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1 Canadian Mining Eye struggled in Q Canadian Mining Eye Q A Q&A with Anthony Makuch, President and CEO of Kirkland Lake Gold page 4 Index comparisons Q Q Canadian Mining Eye index -7% 11% UK Mining Eye 2% 12% S&P/TSX Composite Metals and Mining index -9% 8% Major index -8% 5% Moving into the second half of 2017 Canadian mining companies continue to focus on strengthening their balance sheet by reducing debt. Lately debt repayment has shifted from selling non-core assets to financing through enhanced cash flow generation. According to a recent EY report on debt in the mining sector, if the pace of repayments continues for the remainder of 2017 companies would reduce their debt levels by a further 20% this year. This begs the question, does reducing debt have to mean reducing your ambitions? In addition, the cost of debt is expected to decrease as companies continue to pay down high cost unsecured debt instruments. 1 As an example, Barrick Gold plans to reduce its debt obligations by ~US$3b to US$5b by 2018 through higher cash flow generation, portfolio optimization and creation of new joint ventures and partnerships. 2 As a part of its 2016 stated objectives to reduce net debt by US$300m, Yamana Gold remains on track to repay an additional US$0m this year, following a repayment of US$160m in As an emerging trend, adoption of robotics and automation in the mining industry is gaining traction. Automation refers to the use of semi-autonomous or autonomous machines for various mining activities such as drilling, tunnel boring, loading and hauling. It has enabled 1 Does cutting debt have to mean reducing your ambitions, EYGM Q earnings results report, Barrick Gold Corporation, 24 April Q earnings results report, Yamana Gold, 3 May 2017.

2 Canadian Mining Eye index and peers, last 12 months Canadian Mining Eye index and peers, last 12 months 1, ,050 1, Index value Index value Ju n M ay pr 1 A 17 M ar 17 Fe b 17 Ja n 16 c De ov N O ct Se p ug 300 A Ju l Canadian Mining Eye UK Mining Eye (rebased) FTSE All Share Mining (rebased) S&P/TSX Composite Metals & Mining (rebased) S&P/ASX 300 Metals & Mining (rebased) In April 2017, EY released a report The Digital Disconnect: Problem or Pathway, which suggested that Canadian miners are gradually embracing these innovative technologies to improve their productivity levels. According to Michelle Ash, Chief Innovation Officer at Barrick Gold, robotics and automation have the ability to reduce mining costs by ~40% by 2030 and further enhance productivity yield.6 In addition, Vale Canada expects reduction in fuel costs to the tune of 77% by replacing traditional crushers and trucks with mobile crushers and long-conveyor belts at its S11D Eliezer Batista project.7 Gold: gold prices were flat in Q compared with an 8% gain in Q Gold prices were negatively impacted by the recent Fed rate hike of 0.25% in June Mining a Mirage?, International Institute of Sustainable Development, September Driving productivity in the Pilbara, Rio Tinto website; Mining a Mirage?, International Institute of Sustainable Development, September Digital Reinvention of the Mine, Austmine, 30 May Company website, Vale Canada. Fed hikes interest rates despite declining inflation, sets plan for balance sheet reduction, CNBC, June Metals Quarterly Q2 2017, HSBC Global Research, 19 April A M Ja De N O A mining companies to use driverless mining vehicles such as haul trucks, crushers and rock breakers with the help of sensors, joysticks and positioning software. Canadian Mining Eye UK Mining Eye (rebased) According to the University of British Columbia, automation can help miners FTSE All Share Mining (rebased) S&P/TSX Composite Metals & to increase productivity by 15%-20%, reduce fuel costs by 10%-15% and lower S&P/ASX 300 Metals & Mining (rebased) maintenance expenses by ~8%.4 Rio Tinto, a global mining company with ~19% assets located in Canada, noted productivity gains of % and cost declines of 13% through the effective utilization of driverless trucks at its Hope Downs 4 mine.5 In terms of labour costs, automation is expected to be more beneficial to mines in developed economies due to higher costs of labour compared to developing economies. In addition, labour shortages and safety considerations for mines in remote areas can be addressed through adoption of automation. Base metals: nickel prices fell 6% in Q compared with a flat trend in Q The decline can be attributed to an elevated mine supply driven by the moderation of a ban on Indonesian ore exports and a favourable political scenario in the Philippines.9 Copper prices increased 2%, while zinc prices were flat in Q Canadian Mining Eye Q pr 15 ar Fe b 15 n c ov ct Se p ug 4 l1 Ju According to the University of British Columbia, automation can help miners to increase productivity by 15%-20%, reduce fuel costs by 10%-15% and lower maintenance expenses by ~8%. 15 Source: EY, Thomson Datastream - 200

3 Canadian Mining Eye index, gold, copper and LMEX Index over Q Index value More insights Learn more about debt in mining from Michelle Grant, BC Mining and Metals Transactions Leader, Apr Apr Apr Apr Apr Apr Apr May May May May May May May May Jun Jun Jun 17 Jun Jun Jun Jun Jun 17 Canadian Mining Eye LMEX Index (rebased) Gold (rebased) Copper (rebased) Source: EY, Thomson Datastream Outlook Gold prices are expected to stay range bound over the coming quarters as we have seen in the first six months of the year. Positives include ongoing global geopolitical risks, weakening US dollar and rising inflation rate (2.2% by 2017 as compared to 1.3% in 2016). 10 Geopolitical risks include uncertainties surrounding the process of UK leaving the EU and upcoming elections in Europe (German federal elections due in September 2017). Headwinds include the possibility of a further increase in Fed rates in 2017, following a 0.25% raise in both March and June Concerning base metals, copper prices are expected to be positive on the back of encouraging demand trends in the medium to long term. However, nearterm challenge remains centered on the anticipated slowing economic growth rate in China (accounted for ~50% of world s copper consumption), evidenced in part by the downgrading of China s debt rating by Moody s. 12 Zinc prices are still expected to trend higher on the back of favorable demand-supply market dynamics. According to Wood Mackenzie, a research and consultancy company, zinc consumption is expected to grow by 2.5% annually in the medium term. 13 Nickel prices are expected to remain fairly constant driven by robust global demand for stainless steel (contains 8%-10% nickel) and its encouraging consumption in electric vehicles, offset by surplus mine supply. 10 Country Economic Forecast: United States, Oxford Economics, 7 June 2017; Our 2017 Gold Price Forecast Shows More Gains Ahead, Money Morning, 17 April 2017; Marketing presentation on gold bullion and equities views, Credit Suisse, 23 June 2017; Metals Quarterly Q2 2017, HSBC Global Research, 19 April Here s what the Fed just signalled about the rest of 2017, CNBC, June Metals Quarterly Q2 2017, HSBC Global Research, 19 April 2017; BMI Copper Report Q3 2017, BMI Research, June 2017; Weekly Metals Update The Trunk Call, ia Securities, 26 May Metals & Mining: Get Your Zinc On, Eight Capital, 25 May Metals Quarterly Q2 2017, HSBC Global Research, 19 April 2017; News release, AZO materials. Canadian Mining Eye Q

4 Q& A with Anthony Makuch President and CEO, Kirkland Lake Gold What is your view of the mining sector? Mining is a cyclical business, so we always seem to be running into the same roadblocks. Overall, gold prices are doing fairly well, especially in Canadian and AUS dollar terms. When you look at the industry as a whole, 2017 is turning out to be a positive year. With that said, the industry does have to deal with cost pressures as it relates to capital costs. Thinking about some large joint venture projects in the market, it s natural to understand that the size, cost, technical and market risks command a delicate balance. On the investment side, attracting new investors to our industry continues to be challenging. We need to build the infrastructure at our mines during the downturns so that we reap the rewards during the price upswing. What trends do you expect to see in the remainder of 2017 and going into 2018 in the mining sector? I think re-investing in the business will remain an important trend in our industry. There may still be some companies out there that pad their cash flow for short time by starving their business of capital. But, overall, I believe that our sector as a whole increasingly understands that this approach is an exercise in short-term gain for long-term pain. The market clearly is looking for companies that can demonstrate a capacity to sustain themselves and finance their growth well into the future. At KL, we focus our investments on sustaining and growing production that will support operating cash costs under US$650 per ounce and all-in sustaining costs of under US$950 per ounce. Over the long term, having that kind of cost structure is the key to being able to succeed and to ensure you have the capital you need for the diamond drilling, development, equipment and infrastructure that are critical to successful operation. You also need to invest in exploration to extend orebodies and find new discoveries. We are spending between $45 million and $55 million on exploration in 2017 and have already reported some very encouraging drill results at three of our mines, where we are extending existing orebodies and identifying new areas of gold mineralization. How is Kirkland Lake Gold (KLG) doing since the acquisition of Fosterville? Things look positive. The Fosterville gold mine is performing very well and has the potential to be a generational deposit. If I take a step back and look at the acquisitions that were done last year, the St. Andrew s arrangement with KLG took our diversified production from between 160,000 and 180,000 ounces a year to between 270,000 and 290,000 ounces a year. We actually exceeded the guidance in both cost and production for With the merger of Newmarket Gold Inc. in December 2106, we added th Fosterville gold mine in Australia. Prior to 2016, the mine grades were between 4 and 6 grams per tonne. In 2016, Fosterville produced over 150,000 ounces of gold and the grades were over 7 grams per tonne. This year, we are on track to achieve grades at least double that level and are targeting total production of over 250,000 ounces. 4 Canadian Mining Eye Q2 2017

5 Q&A with Anthony Makuch We also have discovered a a new high grade ore body at Fosterville called the Swan Zone where grades are about 58 grams per tonne, to there are, so there are a lot of good things happening as part of the acquisition. Fosterville is playing a key part in our overall business plan for the year, which includes our upgraded guidance for the Company now targeting total production of between 570,000 and 590,000 ounces. What are the key challenges for mining companies? The mining industry generally has a negative perception. But what most people don t realize is the role mining plays in our lives. When we talk about green energy, for example, we re talking about lithium that has to be mined. For Kirkland Lake Gold, since we completed our recent acquisitions, we still have integration issues to work through. Our focus is on bringing our cultures together, and getting our people thinking about costs and safety. Another key challenge is algorithm trading in the gold space. That s the move from traditional fund managers to computer trading. In this digital age, we re seeing money move around at a pace which has little to do with market conditions, but which have a great impact on metal prices and our share price. What is your opinion on the trends for gold prices? I remember the fundamentals of gold that my father taught me. There are two things you can rely on in investing: gold and land. Both will hold their value over time. What would you rather find in your backyard, a box with $10,000 in 1900, or with $10,000 worth of gold in Gold will always hold its value. However, I feel that there are things that are affecting the gold market that are out of the control of mining companies. Trends will always come and go, and that may limit gold prices. But over time, gold trends up. If you look at gold in terms of reserves worldwide, it is not growing as much as the demand. The long-term trend will be positive. How do you view the future of the gold sector? As gold companies, we need to reinvent ourselves. Part of the issue we have is that we re dealing with a fluctuating market. What is your view on digital mining and what does it mean for KLG? I think digital mining is something we need to embrace. For example, at Macassa in Kirkland Lake, Ontario, we are exploring the use of applying digital intelligence to our battery-powered battery-powered underground equipment, or alternative digital methods for running our equipment underground. Because all of our equipment is electric, we should be able to understand our data better, which will allow us to track and control activities in real time. We could make hot spots underground or even make the entire mine a WIFI hotspot. At KLG, we feel we are leading in terms of introducing battery power at our mines. But there is still more that we can do to embrace technology, optimize our equipment and apply that in our underground mines. What is next for KLG? Our focus remains on Fosterville. There are many opportunities there, and it could potentially become one of the lowest-cost gold mines in the world with costs under US$320 an ounce. The safety and the quality is exceptional and we hope to demonstrate to the world that it s not just a mine with a 600,000 ounce reserve we started out with in 2017, but rather a multimillion ounce deposit. At Macassa, we continue to have encouraging exploration success and are focused on continuing to extend the life of this historic, highgrade mine, as well as on optimizing production to take advantage of the significant processing capacity that exists. Over the next year, we also expect to focus on stabilizing our integrated company and executing what we do well collectively for KL shareholders. Canadian Mining Eye Q

6 Index constituents selected at quarter end Q MV (C$m) Q MV (C$m) Q IAMGOLD 3,109 Richmont Mines 639 North American Palladium 291 Alamos Gold 2,751 Stornoway Diamond 638 Harte Gold 286 Detour Gold 2,651 Mountain Province Diamonds 621 Brio Gold 281 Kirkland Lake Gold 2,582 Alacer Gold 610 Ascot Resources 279 OceanaGold 2,405 Premier Gold Mines 591 Belo Sun Mining 279 New Gold 2,371 Northern Dynasty Minerals 544 Great Panther Silver 278 Pretium Resources 2,253 Sierra Metals 529 Atlantic Gold 277 Endeavour Mining 2,159 Gold Standard Ventures 515 Polymet Mining 245 Centerra Gold 2,062 Trevali Mining 513 Lydian International 240 Torex Gold Resources 1,973 Endeavour Silver 503 Atalaya Mining 236 NovaGold Resources 1,891 Altius Minerals 468 Auryn Resources 234 Hudbay Minerals 1,780 Integra Gold 457 Sherritt International 227 First Majestic Silver 1,776 Sabina Gold & Silver 447 GoldMining 222 Osisko Gold Royalties 1,692 Imperial Metals 446 Bear Creek Mining 216 Silver Standard Resources 1,504 Dundee Precious Metals 432 Trek Mining 199 MAG Silver 1,367 Dalradian Resources 424 Largo Resources 189 Dominion Diamond 1,315 Argonaut Gold 419 Exeter Resource 186 Katanga Mining 1,221 Roxgold 416 NGEx Resources 171 TMAC Resources 1,220 Wesdome Gold Mines 408 Mandalay Resources 169 McEwen Mining 1,061 Asanko Gold 405 Alexco Resource 167 Lucara Diamond 1,056 Champion Iron 379 Lumina Gold 165 Guyana Goldfields 1,051 Teranga Gold 377 Platinum Group Metals 162 Fortuna Silver Mines 1,011 Taseko Mines 371 Energy Fuels 5 SEMAFO 971 Nemaska Lithium 369 Corsa Coal 2 Nevsun Resources 945 Capstone Mining 368 Jaguar Mining 128 NexGen Energy 898 First Mining Finance 361 Paladin Energy 77 Arizona Mining 847 Anglo Pacific Group 335 Red Eagle Mining 76 Seabridge Gold 791 Lithium Americas 330 Avesoro Resources 65 China Gold International Resources 785 Leagold Mining 324 Klondex Mines 775 Golden Star Resources 320 Osisko Mining 764 Gold Reserve 319 Total universe MV C$m 279,476 Sandstorm Gold 761 Denison Mines 313 Top 20 MV C$m 180,242 Orocobre 733 Barkerville Gold Mines 311 Total universe excl Top 20 MV C$m 99,234 Continental Gold 718 Perseus Mining 305 MV of Mining Eye constituents 72,130 Silvercorp Metals 697 Victoria Gold 300 MV of Mining Eye constituents as a % of 73% Lundin Gold 654 Fission Uranium 296 MV of Total universe excl Top 20 Source: EY, TSX and TSXV Market Intelligence Group MV (C$m) Shading represents index entrants MV Market value Changes to the Mining Eye index There were 10 changes in index constituents in Q Ivanhoe Mines moved to the Top 20 index. Gabriel Resources, Primero Mining, Kennady Diamonds, Western Copper and Gold, Chesapeake Gold, Maverix Metals, Orla Mining, Midas Gold, and AuRico Metals exited the index and were replaced by index entrants highlighted in the table above. 6 Canadian Mining Eye Q2 2017

7 Index data Mining Eye index and S&P/TSX Composite index performance, last 12 months Index value Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Mining Eye S&P/TSX Composite (rebased) Source: EY, Thomson Datastream Mining Eye index and S&P/TSX Composite index since ,600 1,400 1,200 Index value 1, Mining Eye S&P/TSX Composite (rebased) Top 20 TSX Mining Source: EY, Thomson Datastream If you would like to view the raw index data, please contact: Jay Patel EY Canadian Mining & Metals Transactions Leader Ernst & Young LLP Canadian Mining Eye Q

8 The Canadian Mining Eye tracks Canadian mining sector performance of 100 TSX and TSXV mid-tier and junior companies with market capitalizations at the end, broadly falling between CDN$3.1b and CDN$65m. These companies trade on the TSX and TSXV, though some of them are headquartered outside Canada. Movements and analysis of the index are reported quarterly. From Q1 20, we have retroactively reset the index to Top 20 and Next 100 (from Top 25 and Next 100) based on the market capitalizations at the end of The historical data has also been reset for comparatives purpose. All company information is sourced from publicly available sources, including company websites and regulatory announcements. Canadian contacts Jim MacLean Canadian Mining & Metals Leader Anton Ivanyi BC Mining & Metals Leader Zahid Fazal Quebec Mining & Metals Leader zahid.fazal@ca.ey.com Jay Patel Canadian Mining & Metals Transactions Leader Ernst & Young LLP jay.patel@ca.ey.com Blake Langill Ontario Mining & Metals Leader blake.w.langill@ca.ey.com Michelle Grant BC Mining & Metals Transactions Leader michelle.grant@ca.ey.com Theophile Yameogo Canadian Mining & Metals Advisory Leader theophile.yameogo@ca.ey.com 8 Canadian Mining Eye Q2 2017

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10 How EY s Global Mining & Metals Network can help your business With increasingly positive sentiment in the sector, miners are focused on restoring balance sheet strength and liquidity in preparation for growth. The sector s key opportunity is still productivity. Although many have made productivity improvements, the critical next wave of gains needs a strong focus on loss elimination, with digital being a key enabler. EY has significant experience in assisting companies to evaluate and implement strategic initiatives, with deep sector knowledge to support you on finance initiatives, such as portfolio optimization and capital planning, and through to operational improvement programs, such as productivity and digital enablement. EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms ofernst & Young Global Limited, each of which isa separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee,does not provide services to clients. For more information about our organization, please visit ey.com. EY area contacts EY Global Mining & Metals Leader Miguel Zweig miguel.zweig@br.ey.com Africa Wickus Botha wickus.botha@za.ey.com Brazil Afonso Sartorio afonso.sartorio@br.ey.com Canada Jim MacLean jim.d.maclean@ca.ey.com Chile María Javiera Contreras maria.javiera.contreras@cl.ey.com China and Mongolia Peter Markey peter.markey@cn.ey.com Commonwealth of Independent States Boris Yatsenko boris.yatsenko@ru.ey.com France, Luxemburg, Maghreb, MENA Christian Mion christian.mion@fr.ey.com Japan Andrew Cowell andrew.cowell@jp.ey.com India Anjani Agrawal anjani.agrawal@in.ey.com Nordics Lasse Laurio lasse.laurio@fi.ey.com Oceania Scott Grimley scott.grimley@au.ey.com United Kingdom and Ireland Lee Downham ldownham@uk.ey.com United States Bob Stall robert.stall@ey.com Service line contacts EY Global Advisory Leader Paul Mitchell paul.mitchell@au.ey.com EY Global Assurance Leader Alexei Ivanov alexei.ivanov@ru.ey.com EY Global IFRS Leader Tracey Waring tracey.waring@au.ey.com EY Global Tax Leader Andrew van Dinter andrew.van.dinter@au.ey.com EY Global Transactions Leader Lee Downham ldownham@uk.ey.com 2017 EYGM Limited. All Rights Reserved. EYG no Gbl CSG ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/miningmetals The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.