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THE DIMENSION STONES SECTOR new perspectives in the international standards reporting

Speaker MARCO COSI

E-mail: [email protected] DIMENSION STONES A new «entry» in the Stock Exchange Listing, to be correctly and professionally approached

GOOD PROFESSIONAL PROJECTS & LISTED PROJECTS THE BRIEF HISTORY OF LISTING (2012-2013)

The first DS companies listed in the International Stock Exchanges are: KINGSTON- (HKSE), FOX -Kossovo (LSE) and ART GO - China (HKSE), The Sector a very particular mining sub-sector, with its own rules, features and driving factors, that MUST be consequently approached and evaluated with different methodology and tools, different from any other mining sectors DIMENSION STONES

A very brief overview DIMENSION STONES ‐ MAIN GROUPS

«», & ONIX

Metam. Marble Onyx Serpentinite

«»

Granite Gabbro, Norite etc. & Migmatites Syenites Granodiorites

«STONES» Commercial Classification

Sandstone Volcanic stone Quartzite MAIN TYPES OF DS PRODUCTS

‐ Blocks QUARRY

‐ Slabs (« semifinished »)

‐ (« finished ») PROCESSING FACTORY PROCESSING ‐ Cut‐to‐Size DIFFERENT TYPES OF DS /DEPOSITS

Hill-slope quarry

Deep trench/open-pit quarry Top-hill quarry

Boulder quarry

Underground quarry Hill quarry QUARRYING THE RIGHT BLOCK

FROM THE MINING DESIGN AND THE FOLLOWING BLOCK PRODUCTION

DEPENDS THE ENTIRE VALUE CHAIN OF THE DS INDUSTRY !!!

A CORRECT EVALUATION, DESIGN and MINING OPERATION

MEANS: THE FINAL BEST COMMERCIAL RESULT

PROJECT VALUATION AND RELATED RESERVE ESTIMATION

MAINLY DEPENDS ON MINING DESIGN & METHOD QUARRYING - Drilling & splitting - Diamond wire - Chain saw

QUARRYING DRILLING & SPLITTING DIAMOND WIRE CUTTING CHAIN SAWE CUTTING

Underground quarrying QUARRYING BY DRILLING & SPLITTING WITH EXPANSIVE CEMENT PROCESSING DIFFERENT PRODUCTS = DIFFERENT PROCESSING LINES = DIFFERENT INVESTMENT

Block Cutter Gang Saw

TILES SLABS

Bridge Saw CUT-TO-SIZE THE PRESENT DS INDUSTRY SCENARIO

 Very Old Industry  Ancient activities

 DS are not considered as «Strategic Minerals» in the common sense by Mining & Financial Institutions.

 Anyway, actually they represent «KEY MATERIALS», as most of Mat. And some IM, for the sustainable development of most of developing countries and their PS and Societies in general, IF a new realistic sustainable medium term policy for these «Low Value Minerals/Materials» will be put in place. This process can be also replicated in industralised countries, supported by Regulatory Inst. And Policy Makers.

 Small Companies. Pyramidal, often «one man» company structure

 Low technical Know How of modern exploration & evaluation techniques

 Low Know How about Resource/Reserve definition and utilisation

 Fully Market driven sector (often totally non regulated)

 Increasing Number of DS quarrying projects, mainly outside EU

 Relative low investment for exploration, evaluation and mining, too, in comparison with most of other Minining projects THE PRESENT DS INDUSTRY SCENARIO (continue)

 Common preception of easy investment with easy & fast return of investment, often without considering the market factor

 Regular increasing Market Demand of DS products in all markets. Large Competition due to the entry of several new players, often unskilled. Growth of middle class in some BRICS countries and others.

 No any large Mining Company/Group invest in DS. Lack of technical and market know how.

DUE TO ALL THESE FACTORS LISTED ABOVE, the economic and environmental difficulties in investing in industrialised western countries and the huge economical growth in China and BRICS, there is a new trend in the Industry: Large Far East and Indian DS companies and also some Financial Investing Groups, wish to invest in DS Projects. Some of them also begin Stock Exchange Listing process. ANYWAY THIS PROCESS STILL HAPPENS WITHOUT ADEQUATE TECHNICAL KNOW HOW.

THEN, TO BECOME MATURE, THE DS INDUSTRY ABSOLUTELLY NEEDS TO INCREASE ITS TECHNICAL AND MANAGEMENT CREDIBILITY IN THE INTERNATIONAL MARKETS.

TECHNICAL , MAINLY IN EXPLORATION AND EVALUATION PHASES, STANDARDIZATION AND A PROFESSIONAL AWARENESS CAMPAIGNS TOWARD KEY DECISION MAKERS ARE THE MAIN GOALS FOR A LONG TERM SECTORAL IMPROVEMENT

PERC IS CONTRIBUTING TO THIS PROCESS AS REGARD THE LAST TWO POINTS Why the dimension stones sector needs an its own section in the global reporting standards A. SPECIFIC SECTORAL FEATURES, DIFFERENT FROM ANY OTHER MINING SUB-SECTOR.

 DS sector has its own rules and particular methods of evaluation, due to its specific features and peculiarities , different from any other mining sub-sector.

 Modern exploration and evaluation methods poorly utilized by DS companies and investors

 Lack of technical know how on the DS industry, of Financial Institutions, Stock Exchange community and of some large investors

 Few CPs with specific sectoral experience.

 No Standardization in the sector B. RECENT FAST GROWTH OF THE INDUSTRY IN SOME NEW DEVELOPING AREAS IN THE WORLD. LARGE SIZE OF THE NEW DS GROUPS and THEIR INTEREST IN LISTING PROCESS

 Since around 5-6 years, following the economic boom of China and other southern Far East countries (e.g. Indonesia, Thailand, Singapore, Vietnam etc.), the Dimension , in some of these countries, begun a more “mature” development process. China and Indonesia in particular, from just large potential DS source countries, became key DS producers and end users with demand rapidly and tremendously increasing.

 New strong and large growth of DS companies and large groups in these countries, with increasing interest in investing in new DS mining projects in Asia and all over the world. Some of them begun to acquire DS quarries and factories in , Europe (mainly and Portugal, at present) and USA, and/or to enter in majority partnership/shareholding.

 Since 2011 several DS Companies (mainly Chinese and Indonesian) started the Stock Exchange Listing process, mainly in the HKSE. Only few of them completed that process.

 In Europe only a UK DS company has been listed at London SE in 2011 (FOX Marble Holdings), although the first two years of activity The Group incurred an large operating loss in the first two years !!! WHY DO I MENTION THAT ?? DIMENSION STONES PROJECTS CANNOT BE EVALUATED & VALUATED LIKE ANY OTHER MINING PROJECTS : THEY ARE TOTALLY DIFFERENT !!

Any stones in principle can be sold; anyway only the ones with competitive features will have chance of success (i. right texture, colour and their regular and homogeneous distribution; ii. no particular defects; iii. correct evaluation of reserves mainly according to market quality; iv. low transport costs to the factory and to the markets; v. correct professional market evaluation and preliminary tests; vi. perfect knowledge of the market; vii. right quarrying method and equipment, according to the different material and geo-structural situation; viii. production of large size blocks with regular shape (§)

 Projects must be managed and evaluated by persons with direct experience in the sector with good technical and market know-how. A CPR in principle cannot be drafted by any mining CP, without specific experience in DS mining and Market

 The geo-mining and market value of DS material in general cannot be defined by laboratory tests. (e.g.chemical tests for most of other minerals) and its objective market value easily presented by numeric results A gold or any other metal or most of Industrial minerals ore body, can be evaluated and relatively easily presented by a series of sampled drillings or trenches and the chemical analyses of samples representative of a certain thickness. This allows to have a clear picture of the volume and grade of the ore body, being the chemical analyses in position to give precise information on the quality and grade of the target mineral. From this type of document is generally possible to “say” if the material is of low, medium or high quality in relation to market demand (see IM) and/or to define the content of the mineral in an unit volume (see metals). Moreover, in most of these cases it is actually predictable that the target material can be sold in the International Market, mainly based on the mining location, transport costs and the marketing skill of the producer.

 In a target Dimension Stones Project the mineral ore body is not contained in the rock mass (country rock)….. IT’S THE ROCK MASS ITSELF!! Anyway It’s not enough to define its geometrical characteristics, but also, and mainly ITS MARKET QUALITY !! ------(§) in principle, It’s better to produce small regular blocks with good colour & textural characteristics than large blocks with defects and/or lower colour&texture quality GOOD KNOWLEDGE OF THE MARKET and ITS TRENDS FOR THE FINAL EVALUATION OF THE TARGET STONE

MARKET RULES & TRENDS

INTERNATIONAL MARKET TREND OF BLACK & YELLOW GRANITES POSSIBLE DEFECTS IN GRANITES (No differences in colour grade, tonality and distribution are considered in the examples below)

G C D L F I A E H

B

A ‐ Black Spots / Xenolites of different composition E ‐ Whitish lines; quartz or veins darker in colour B ‐ Presence of lighter areas with same grain and texture F ‐ Black Lines; biotite, amphibole or mylonitic veins C ‐ Presence of areas of different grain (coarser or finer) D ‐ Presence of “whitish Spots”, single or small G ‐ Whitish veins; usually tension quartz bearing veins agglomerates I –Presence of small holes H –Large blackish veins L‐ presence of metallic minerals (reflecting and oxidizing) POSSIBLE DEFECTS IN – “MARBLES” IN CRISTALLINE MARBLES X X A E A B I F

D

H D C Y B G C G F Y

A ‐ Coloured Lines. Thin Veins / Joints / fractures. A ‐ Coloured Lines. Thin Veins / Joints / fractures Often brownish/yellowish:carbonates or reddish B ‐ Calcite irregular veins due to oxidation C ‐ Long straight regular calcite veins B ‐ Calcite irregular veins (whitish) D ‐ Darker coloured marble bands C ‐ Colored Spots (often red, due to oxidation) E‐ grayish impure (silcate) marble bands D ‐ Darker colored limestone bands F‐ dark spots (of different colours) E‐ Areas with different grain (coarser or finer) G‐ white lines. Usually calcite veins, joints / fractures F‐ dark spots (of different colours) H‐ presence of small holes G‐ white lines. Usually calcite veins, joints / fractures I‐ presence of metallic minerals (reflecting) X and Y : main differences\ of colour grade and tonality X and Y : main differences\ of colour grade and tonality THEN …..

A DIMENSION STONE MINING PROJECT MUST BE CORRECTLY AND PROFESSIONALLY EVALUATED BY SECTORAL EXPERTS WITH HUGE EXPERIENCE NOT ONLY IN EXPLORATION AND GEO-MINING EVALUATION, BUT ALSO WITH A GOOD and UP-DATED KNOWLEDGE OF THE MARKET AND ITS RULES and TRENDS

Detailed Market and Price Benchmark Analyses NEEDED FOR EVALUATION OF THE MARKET QUALITY OF DS RESERVES !!! INNOVATION & STANDARDIZATION

The keys for the sectoral improvement OBJECTIVES FOR A CORRECT DS REPORTING STANDARD

New Mining and Financial investors are nowadays very interested in investing in Dimension Stones Projects. Many of them are also willing to be listed in International Stock Exchange.

Following the particular unique features of the DS Industry and the way to evaluate DS quarry sites, different from any other minerals, IT’S NOWADAYS ABSOLUTELLY NECESSARY TO MAKE AVAILABLE OFFICIAL INTERNATIONAL DS REPORTING STANDARDS and CODES, IN POSITION TO GUARANTEE CORRECT AND PROFESSIONAL PROJECT and RESERVE EVALUATION. THE NEW PERC APPROACH

They will also help the investors in the challenge of deciding which company and project to invest in, too. MAIN OBJECTIVES OF NEW UP DATED INTERNATIONAL DS REPORTING STANDARDS AND RELATED INSTITUTIONS 1. Reduce if not eliminate misleading reporting, and consequently possible scams, much easier in a sector like the DS one, with very few objective usual decision making factors.

2. Create global clear standards for DS resources, in line with the DS industry requirements, rules and ways of evaluation

3. Provide an excellent benchmarking tool for DS projects worldwide

4. Reduce requests of clarifications, generally made by Stock Exchange decision makers, due to their present low skill and experience in the matter

5. Know how transfer toward professionals, financial community and any other key decision makers THESE GOALS SHOULD BE REACHED BY:

 carrying out a very professional in depth awareness action toward the Financial Community, the Stock Exchange key decision makers and international private investors (Workshops, Seminars, Web, etc.)

 adapt the existing International Mineral Standards (e.g. PERC) to the particular features of the DS Industry.

 identify a community of international experts (Competent Persons) with large specific experience in the DS industry. Create and facilitate synergy among them.

 possibly using similar evaluation methods in the CPR. It cannot be forced, but naturally put in place by the organization of regular international meetings, with discussion of cases histories, by the various interested Stock Exchanges or Mining Standards, as PERC is doing since last year. A PROPOSED METHOD TO EVALUATE THE DS PROJECTS IN CPRs DEFINITION OF THE TARGET RESOURCES includes: geo-lithological, stratigraphical and MARKET features

DS RESOURCES and RESERVES ARE ALWAYS REPRESENTED BY A ROCK TYPE AND NOT BY A MINERAL AS IN ALL MINING INDUSTRIES (excluding aggregates) CALCULATION OF RESOURCES UTILISE CLASSIC GEOLOGICAL ANALYSIS TO IDENTIFY AND EVALUATE FUTURE DS COMMERCIAL TYPES

= CREMA MARFIL Quality 1

= «CREMA MARFIL» Quality 2

Example for Spanish Crema Marfil The Geo-structural survey and further drilling and other exploration tools IDENTIFY THE TARGET RESOURCES

RESOURCES: M-U Eocene hard foss. massive limestones (SPAIN) = CREMA MARFIL MIN WIN‐WIN Brussels 20‐21 Nov. 2014 “Establishing Europe‐wide minerals reporting standards –The key to reducing risk and increasing opportunity”

FROM RESOURCES TO RESERVES Summary of Resources-Reserves Calculation for a DS Project: Sketch Steps description

Step 1: Calculation of ALL inferred Geological Resources (using geo- stratigraphical analysis and ref. to Market demand- Identification of the target Formation)

Step 2: Calculation of Measured Resources (using detailed geo-structural analysis and exploration tools (drilling, geophysics, trenching, sampling, geo- structural sections, geological sections and sampling along outcropping slopes, etc.)

Step 3: Before Calculation of Reserves the following 6 (six) “MODIFYING FACTORS” have to be identified and calculated: THE GEOLOGICAL&STRUCTURAL MODIFYING FACTORS

generally utilised for

DIMENSION STONES RESERVES CALCULATION ( from RESOURCES ) MIN WIN‐WIN Brussels 20‐21 Nov. 2014 “Establishing Europe‐wide minerals reporting standards –The key to reducing risk and increasing opportunity”

MAIN MODIFYING FACTORS JOF (Joint-fissures opening factor): % of “non-existing” target rock due to opening spaces produce by the opening of joints, fissures, holes and caves, not directly produced by karstic phenomena.

KF (Karstic Factor): % of voids due to karstic phenomena (from core looging and from fields analysis)

WF (Weathering Factor): % of weathered rock (mainly from field analysis and core logging)

MF (Mining Factor): the portion of target Resources that cannot be calculated as Reserves due to the Mining Plan / Design (e.g. final bench quarry shape; reserves that cannot be economically mined, etc.)

QF (Quality Factor): It defines the market quality of the identified target rock mass , based on its geo-lithological features (colour, grain, texture and their distribution)

MLF (Mining Lease Life Factor). It depends case by case and country

JF (Joint Factor): evaluation of Vp,JV, and other geostructural and geomechnaical Index to evaluate the quality of Rock Mass in relation of jointing. ONLY TO EVALUTE THE RECOVERY RATE OF TARGET DS BLOCKS !! Joint opening Factor Mining Factor

Weathering Factor Karstic Factor Joint Factor (JF) MAINLY TO DEFINE THE POSSIBLE MINING RECOVERY RATE OF MARKETABLE BLOCKS AS REGARDS THEIR DIMENSIONS

FIELD OBSERVATONS + STRUCTURAL SECTIONS + CORE DRILLS ANALYSES and GEOMECHANICAL EVALUATIONS

Vb (Block Volume)= S1*S2*S3 / Sinγ1*Sinγ2*Sinγ3(where S1, S2, S3 are the spacings in the three joint sets, and γ1, γ2 γ3 are the angles between the joint sets) Jv (Joints per unit Volume) = 1/S1 + 1/S2 + 1/S3 + …1/Sn (where S1, S2 and S3 are the average spacings for the joint sets)

RQD (Rock Quality Designation)

WJd (Weighted joint density), from drill cores: wJd = (1/L) Σ(1/sinδ) = (1/L) Σ f i (f i : rating factor)

Block Diagram showing the schematic visualization of the maximum and minimum rock volume defined by the main and other few random joints sets (from Palmstrom, 2001)

Correlation Abacus between Jv, Vb and RQD for Block/Volume Size measurements (from Palmstrom, 1996) NEW MODERN METHODOLOGIES TO SUPPORT THE DS EVALUATION AEROFOTOGRAMMETRIC ANALYSIS WITH DRONE and LASER TECHNIQUE THE QUALITY FACTOR (QF)

THE MOST IMPORTANT FACTOR TO DEFINE THE VALUE OF A DS PROJECT and the RELATED RESERVES

QF CANNOT BE EVALUATED BY LABORATORY OR ANY OTHER OBJECTIVE TECHNICAL TEST !!!!

THE CP, USING HIS EXPERIENCE, BENCH MARK ANALYSES, REFERENCE DATA AND DOCS MUST DO THAT

The Quality Factor refers to the target DS MARKET QUALITY. This must be evaluated by a DS CP, expert in market,too (as most of DS CPs are!!).

The Market Quality Evaluation should consider: - the present market requirements - the value and market demand of similar materials to the target stone - the presence of defects normally considered by market customers

To transform the Market Quality Evaluation in a semi-quantitative analysis, necessary to be introduced in the calculation of RESERVES, is absolutelly necessary the presence of a DS CP (see points above) and the execution af an accurate price and quality evaluation BENCHMARK ANALYSIS of similar materials.

Quality 1, 2 and 3 (to be considerd) Quality 4 to be rejected DS QUALITY EVALUATION

1. Color

2. Texture QUALITY

3. Grain

4. Defects

5. Distribution of 1,2,3 and QUALITY

1300-1800 USD/m3 800-1200 USD/m3 500 - 800 USD/m3

ABSOLUTE BLACK

DEFECTS DS QUALITY EVALUATION

CORE LOGS DS QUALITY EVALUATION 3D MODELLING FROM QUALITY LOGS

OPEN PIT THE QUALITY FACTOR (QF)

CORE LOGS

ZK 101‐1 Depth Qualit % of Market Qualities Level (m) yRemarks 0‐15 1 (2) White ‐ very light grey marble very solid and sound. Very fine v I 15‐49 1 grain and micritic structure. 49‐63 2 Homogeneous characteristics 1234 Transiti on 63‐75 2 41,3 46,3 10,5 1,9 75‐80 2‐3 Fine grain grayish micritic crystalline marble. 80‐83 2 Less homogeneous than vI. v II 83‐93 3 Few fractured band with oxides SUMMARY TABLES 93‐103.80 4 FROM RESOURCES TO RESERVES Summary of Resources-Reserves Calculation for a DS Project: (continue)

Measured Resources – (QF+KF+WF +JOF+MF ) = Total Proved Reserves

Levels Total discounting factors (%) Proved Reserves

A QF (10%) + JOF (3%) + WF (5%) + 3,061,991 m3 KF (6%) +JF(2%) +MF (5%) C QF (15%) + JOF (3%) + WF (5%) + 674,326 m3 KF (6%) +JF(1%) + MF (5%) Sub‐total 3,736,317 m3 D QF (20%) + JOF (3%) + WF (5%) + 963,222 m3 KF (6%) +JF(0 %) +MF (5%) Total 4,699,539 m3 SUMMARY RESERVE With calculation made for each stratigraphic level and/or geo-structural area IT IS NECESSARY TO ORGANISE PROFESSIONAL AWARENESS CAMPAIGNS TOWARD FINANCIAL INSTITUTIONS, STOCK EXCHANGES BROKERS & SPONSORS, and INVESTORS CONCERNING

THE PARTICULAR FEATURES OF THE DS PROJECTS AND THEIR PARTICULAR WAY TO BE EVALUATED

THIS OBJECTIVE, AND THE DRAFTING OF A NEW PROPOSED SPECIFIC PARAGRAPH FOR DIMENSION STONES ARE THE MAIN GOALS OF PERC STANDARD thanks all !!

AlpiConsult Stones MARCO COSI – Dimension Stones and Industrial Minerals Consulting Via Rudena, 77 – 35123 Padova () T. +39-348-4203504 F. +39-049- 7397271 E-mail: [email protected] E-mail: [email protected] Skype: marco.cosi