1 OceanaGold – Employer of Choice.Economics 2017 2017 OceanaGold – Employer of Choice. Innovation • Performance • Growth

2 Definitions Market Failure – A market failure exists whenever the free market equilibrium quantity of output is greater or less than the socially optimal level of output. The free market will produce either too much of a good or too little. Negative Externality of Production – When the production of a good creates unintended spillover costs for society as a whole that are not born by the producer of that good. Positive Externalities – When the production of a good creates unintended spillover benefits for society as a whole that are not born by the producer of that good.

3 Negative ExternalitiesDust – during mining operations dust may affect air quality and may land on housing and cars costing residents time to clean these. Noise – noise pollution can occur with our mine pit being in the middle of town. Vibration – residents of our town at times are affected by vibrations which can cost them sleep hours, especially day shift workers. Mine Pit – some residents see the Open Cast mine as an eye sore Waste Rock Embankments – people living next to the waste rock embankments have a changed landscape and may not get the same amount of sun on their grass reducing milk production. Housing – Some people believe that the gold mining operation reduces the value of their house in Waihi. Water – Waste run off and tailings

4 Aim: Marginal Private Cost + Tax = Marginal Social Cost GovtAim: Marginal Private Cost + Tax = Marginal Social Cost Govt. Intervention – Royalties and Regulations AEP-The Amenity Effects programme pays money to people in Waihi impacted by mining activity. Regulations/Consents A range of strict consents are in place to reduce effects of externalities. Gold P= Benefits/Costs amenity effect payments Vibration Reduction Noise reduction Dust reduction Monitoring Compliance costs P1 Increased cost of production reducing gold output P Supply 1 = Marginal Social cost 1 Supply = Marginal private cost Demand = Marginal benefit Q1 Q Q The graph above shows that without intervention, a greater amount of gold would be produced at a lower cost with the environmental and social effects being burdened on the population NOT the company. When interventions (consent limits and regulations etc.) are imposed, a lesser quantity of gold is produced at a higher cost. (Only high value ore bodies are worthwhile mining where Q1 and P1 intersect.)

5 Martha Mine – Historic Workings7 vertical shafts 170 km drives 600 metres deep Open pit approx 250 metres deep

6 2nd June 2011 Strictly ConfidentialWaihi today Favona Moonlight Trio Correnso Martha East Layback Waihi has produced more than 7 Moz of gold since mining started at Martha in the 1880’s. . Most exploration in Waihi has been focused on locating extensions to outcropping veins - you don’t see the level of drill coverage that you might expect in such a productive district. That is partly because the extent of postmineral cover and the location of the Waihi township present significant challenges to district-wide exploration. I am going to talk about some of the challenges to exploring in Waihi, some of the methods we use for targeting under cover, and some of the ideas that have evolved from recent work. Why do we believe there is still opportunity for further discovery at Waihi: No 1!! We have untested targets under cover within a highly productive vein field And the recent discovery of Favona less than 2 km from Martha indicates that systematic exploration can successfully locate buried mineralisation in the Waihi area. NWG Office Martha Exploration Project 2nd June 2011 Strictly Confidential

7 The Macro Economic Effect on a Town. What is a gold mine worth?We employ 400 staff and contractors Another 400 people indirectly employed On average we spend around $190M a year on goods, services, rates, taxes, royalties. 32% is spent locally (within 30km of Waihi) 29% is spent regionally (Bay of Plenty, Waikato, Coromandel) 21% is spent in the rest of NZ 18% is spent overseas In the last five years: $239m in capital expenditure and $694m in operational expenditure 82% of this money is spent in New Zealand Since 2006 we have spent $264m on goods and services in and around Waihi, a town of 4,500 people Since 1987 more than 2.5 million ounces of gold and 20 million ounces of silver have been produced

8 Government Intervention in gold mining to Internalise and minimise negative externalitiesInternalising externalities Dust – water trucks traveling the haul roads constantly watering down roads etc. Dust suppressants being put onto un-rehabilitated areas. Dust monitoring throughout town, recording and reporting Conveyor belt housed and watered with sprinklers Noise – Working in the Mine Pit from 7am – 7pm weekdays, ½ a day Saturday and not on Sundays or public holidays Sound reducers on trucks. Conveyor belt completely housed and watered to reduce dust and noise Primary crusher set down below ground Silent horn systems installed on trucks Water -14 million dollars treating water to meet strict limits. Further, if a company wants to prospect, explore, or mine, they may or will need approvals from: the Ministry of Business, Innovation and Employment (MBIE); Landowners, Iwi, Councils; Department of Conservation (for concessions, access to land, and Wildlife Act permits); and Heritage New Zealand Pouhere Taonga. Then there are consents required in relation to health & safety legislation, hazardous substances, buildings and construction, and, in some cases, overseas investment.

9 Demand Elastic Demand ?? Maybe the law of demand? Gold is something like a vacation - when the price goes up, less people will want to buy - because the demand is "sensitive" to the price - some of the reasons why a product is “sensitive" is because there are alternatives. - a good example of a product like this is gold. - when gold is relatively cheap, people will buy lots of gold jewellery, when the price of gold goes up, people switch to silver jewellery - the demand curve is shallow because this represents the fact that when the price changes, the number of people that will buy changes a lot Gold demand changes as price increases. The higher the price the less people consume.

10 Gold price Last Five Years Gold price GraphGold production has been in decline since the early 2000s. One factor is that all the "easy gold" has already been mined; miners now have to dig deeper to access quality gold reserves. The fact that gold is more challenging to access raises additional problems: the miners are exposed to additional hazards, and the environmental impact is heightened. In short, it costs more to get less gold. These add to the costs of gold mine production, resulting in rising gold prices. Mining companies now explore residential areas conservation land, difficult countries to work in.

11 What is gold used for?

12 Who uses Gold?

13 Gold Mining, The Market and Externalities“Any environmental policy that is directed towards the mining industry has to confront a very intricate trade-off. Mineral production provides society with a number of important benefits, out of which the market value of the metals and minerals produced is the most important. However, it also produces negative impacts on important environmental amenities (…), whose values are much harder to determine since these goods are not traded in the market. To what extent is society willing to give up certain environmental services in the name of mineral development and vice versa?” Fostering the Positive Externalities of Mining University of Dundee 13

14 What do people in Waihi perceive to be the disadvantages of mining?

15 Residents Business (150) (50) % 2 6 1OTHER DISADVANTAGES OF MINING (Mentioned by 1% of total) Residents Business (150) (50) % Few jobs/ not enough jobs/ not enough for locals 2 Open pit/ big hole 6 Change of ownership uncertainty Tailing dams 1 Run by an overseas company Profits go off-shore Split township Kiwibank won't lend in Waihi Disruptions to the town/ people Dangerous for employees Disregard for residents Eyesore Money from mine not spent in Waihi Risk of/ having to relocate Removing our heritage/ history/ for Māori Sexist employer Health problems Dewatering Long hours of operation Broken promises Mine becoming larger Lack of explanation of plans Extension of closing date Amount of waste taken If extensions fail to go through Earthquake concerns Concern re water for future lake Anti-mining uses open pit as an anti-mining tool Impact on traffic Cost to country/future New Zealanders Drilling in school grounds Operating industry in residential area Other businesses can't compete with pay rates Negative publicity for Waihi/ from Greens/ puts off new residents Other disadvantages of mining

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17 Resident s Busines s (150) (50) % 6 2 5 4 3 1 OTHER BENEFITS OF MININGEnvironment/ manage environment 6 2 Top-up system for house purchase/ compensation 5 Population growth 4 Town improved 3 Great PR/ consults the public/ open/ honest Traditional mining history Improved safety 1 Real estate boom Future of Waihi after closing Less noise Great place to live Mine not visible from town Takes up less land Town has been tidied up Good for the country Financial advice mine/ shareholders Underground mining on-going None/ no advantages Don't know

18 AEP Overview The HDC consent for Correnso requires the AEP in recognition of reduced amenity to some residents. Not related to: Property damage Consent compliance Payments based on estimated vibrations Minimum qualification: ≥1.5mm/s twice in any month Minimum payment: $250 At occupied residences To occupiers Calculated six-monthly Vibration (mm/s) per Blast Event ($) ≥1.5 17.70 ≥3.5 53.00 ≥5 177.00 ≥6 352.00 (CPI Jan 2013)

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20 Vibration Monitors for Correnso

21 Resource Consents Community RelationsNWG must appoint a Company Liaison Officer to receive complaints from the community 14/09/11

22 River monitoring sitesd) OH1/UPD f) RU1/R2 c) OH5/B e) OH6/DPD a) OC2 b) OH3/A OH3 – u/s of upper discharge OH5 d/s of upper discharge OC2 - Upstream of site Ruahorehore confluence OH1 u/s of lower discharge OH6 – d/s of lower discharge 14/09/11

23 TSF management Bird monitoringPond water level monitoring Bird monitoring Peak recorded number of birds taking sanctuary on any day = 900 14/09/11

24 Vibration Monitoring SystemCompliance Requirements Monitoring specifications comply with the criteria set down in the Hauraki District Plan A complete record of each blast is required, including all blast design details Any complaints are documented 14/09/11

25 Dust Monitoring Ambient air trigger limit = 45 µg/m³ Trigger limits are from the National Air Quality Guidelines and not a compliance limit. The Mining Licence limit = 100 µg/m³) 14/09/11

26 Positive ExternalitiesTourism – From our gold mining venture many groups, individuals, couples and families arrive to look into our Mine and watch our operation. This has an impact on our town in relation to tourism and spending in our township. Riparian planting -–In line with consents to ensure that river quality of our local river the Ohinemuri River was in the best possible health, the mining company planted over 200,00 native trees and shrubs along the river embankment. This has helped improve the water quality of the river. The Ohinemuri river was chosen as one of the World Fly Fishing competition rivers in 2008 and is well used by anglers today. NZ Dotterels have been found breeding on our waste rock embankments which are small hills we have built out of all of the waste rock from our mine pit. This is the first inland breeding area for Dotterels in the North Island. We came across this in They are a threatened species with around 1600 left in NZ Walk ways around black hill have been created which are used by the public Manuka plantings are well used by beekeepers.

27 Rehabilitation Plans for the FutureMartha Pit filled to create recreational lake and park Estimate 27 years to fill with rain and natural groundwater inflows Est. 6-7 years to fill if supplemented by Ohinemuri River flood flows Tailings Storage Facilities Wetlands and native plantings Grazing 14/09/11