Fondo Santa Barbara Building Mineral-Based Wealth

from the Bottom Up A Paradigm Shift in Mineral Development and How Communities Can Benefit Immediately

Leigh Freeman and Rob Johansing December 2016

www.FondoSantaBarbara.com

Fondo Santa Barbara Mitigating poverty and conflict by allowing willing hands to work in meaningful and sustainable jobs. Creating mining-based employment in marginalized communities. Creating and sharing tangible wealth from the local geological endowment with boots-on-the-ground.

Fondo Santa Barbara

• A non-profit formed in April, 2015 to mitigate poverty and conflict by creating sustainable and meaningful mining-based employment in marginalized communities.

• Adapting a working model from Nicaragua based on more than 100 man-years of work around the world with marginalized communities as mining professionals.

• Creating value from the bottom-up … rocks and local people.

• Applying this model in-the-field with boots-on-the-ground.

Vision

• Create sustainable businesses that optimize [employment opportunities based on the specific geological endowment of the area, i.e. metals, minerals, gem stones, fossils, etc.

• Community Social Enterprise Business Model – Maximize number of meaningful jobs with minimal capital investment

and barriers to entry for the workforce (minimal education and training necessary)

– Link … geology … people … markets – Profits reinvested in the local community and support other FSB

community work An alternative to mega-projects which generate great wealth over an extended period but can polarize local communities;

• Reduces risk for later investment by empowering communities and opening avenues for communication; and

• Provides immediate and tangible impact.

Necessities

• Geological endowment …. Focus on broad definition of Economic Geology viewed from a people and business/marketing perspective

• Seek to add value to mined materials (example gem mining and cutting)

• Traditional metals such as gold and copper, precious and semi-precious stones or unique stone for use in sculpting

• Communities as well as regional and national governments must be sufficiently functional to allow efficient deployment of FSB Community Social Enterprise Business Model.

Metrics

• The most important metric is the number of sustainable jobs in the formal economy (acceptable safety, human-rights, business, social and environmental practices)

• Earnings opportunities are competitive with other opportunities in the region

• Bonanza, Nicaragua gold-mill model: – One-time investment of $2,000 to $4,000 per employee – Provides a sustainable income of $2,000 to $3,000 /yr per employee – Annually adds at least 150% of this amount per employee to the

formal economy – Returns the capital investment to the financier within five years

– *These metrics assume a target wage of $10/day. They must be adjusted based on the

regional wage expectations for desirable job opportunities

FSB in Nicaragua

• Working in parallel with the Lowell Institute of Mineral Research of the University of Arizona to document the relationship between the community, formal mining and artisanal mining to adapt the business systems for application in other areas

• Four projects under consideration – Series of 100 tpd mills to support artisanal gold mining by two groups of indigenous people in

a very remote part of Nicaragua. FSB will arrange capital and acquire mining concessions from a formal mining company and assist local communities with exploitation.

– Malachite and azurite project for lapidary and mineral specimens for local and international markets.

– Carnelian agate project for fabrication of jewelry and specimens for the local tourist market. – Expanding art and craft businesses and facilitating market access to international markets for

premium statuary carved from a unique, locally-derived stone.

FSB supports Artisanal, Small and Micro-Mining Projects. Brief definitions are provided below.

Definition: Artisanal Mining

Gold and gem stone businesses have limited barriers-to-entry to realize value. As such, they offer the only path to survival for some 25 million grossly marginalized, poverty-stricken people. Operations are labor-intensive and do not require mechanization. Metal recoveries are typically low and products sold at a discount; value is generally not added. Technology levels are low and little consideration is given to safety, security and the environment. Artisanal miners typical work without any mineral rights.

Definition: Small Mining

Small mining normally involves higher technology in mining and processing and is usually a down-sized version of formal mining. Formal rights to the resource are usually associated and acceptable safety, human-rights, business, social and environmental practices are employed. A measurable amount of capital is required. The most important metric is the number of sustainable jobs in the formal economy. FSB views the transition from Artisanal Mining to Small Mining as a goal. Small Miners typically have some form of mineral rights.

Definition: Micro-Mining

This is a scaled-down version of ‘artisanal mining’ or possibly small mining where most of the value is immediately down-stream with value-added methods. Examples include locally-derived stone which can be shaped, polished and marketed. Here, value is realized by artisans processing this unique mined material. The nucleus of this business modestly supplies limited local markets. Other opportunities involve the recognition of semi-precious stones, minerals and fossils that can be supplied by the community with value adding performed by the community. In micro-mining, rights are not particularly relevant in that the value of the mined product is minimal – the value adding component is a combination of community input and access to the markets.

FSB’s Micro-Mining Rosita Malachite

Value = $0 Value = $100

FSB’s Micro-Mining Sculptures, Esteli, Nicaragua

Value = $0 Value = $600

Artisanal Mining in Bonanza

Sub-Economic Gold Vein

Bonanza as Host to >5,000 Artisanal Miners

FSB’s Micro-Mining Castillo Carnelian Agate, Nicaragua

No Value + Community = Value in local tourist trade

Unique to FSB

• Add value with Boots-on-the-Ground • Experienced ‘mining people’ working directly

with local communities to realize enterprise value from mined materials

• Leveraging availability of experienced mining professionals looking for opportunities to ‘give back’

• Developed systems for recruitment, advising, deployment of support of mining and business professionals

Many years of ‘study’ - time for action!

‘Lack of Economic Opportunity Contributes to Conflict’

• In Nicaragua, artisanal gold mining has been supported since the generational Civil War to create job opportunities for former combatants

• Functional example …. Bonanza district – Proven, sustainable business system to be adapted to other areas

• Being studied by Fondo Santa Barbara and Lowell Institute of Mineral Research – University of Arizona in the context of a Memorandum Of Understanding

Leadership

• Leigh Freeman – Geological engineer. 40 years experience with large and small size mining companies as well as service companies in technical, management and executive positions. Recognized leader in innovation and global mining sustainability. Involved in raising +$100M for early-stage resource-based domestic and international projects. Expert in business strategies and tactics as well as development of high-performance business teams.

• Rob Johansing – Geologist. 40 years experience with large and small size mining companies in

technical and management positions. Extremely entrepreneurial – in developing mining projects as well as everything for eco-tourism and mineral specimen businesses and geological art businesses. Extensive experience as boots-on-the-ground working in companies managing projects while working with local communities as well as regional and national governments to develop and operate small to medium-size businesses, including mines.

• Scott Gaffri – Geologist. 30 years of experience with large and small size mining companies in

technical and project management positions. Extremely diverse: economic geologist, gemologist, jeweler, placer expert, IT expert with strong environmental credentials. Boots-on-the-ground.

• Chris Anderson – PhD Anthropologist. 30 years experience primarily with large companies and

educational institutions. Expert on best practices for mineral developments in remote and indigenous communities. Effective in the field and with international institutions as well as with local, regional and national government leadership.

Advisory

• Mary Poulton – PhD Mining Engineer. Director of Lowell Institute of Mineral Research University of Arizona.

• Paul Zink– Former mining analyst and account manager with J.P. Morgan and President of International Royalty Corporation.

• Peter van der Veen – Mining Engineer. Former Head of Minerals and Energy for the IMF and World Bank.

• Brad Ross – PhD Mining Engineer. Adjunct faculty (mining sustainability) for the Mining Department of the University of Arizona. Expert on high-performance teams. Recent PhD dissertation on developing mineral specimen businesses in Namibia as a financial anchor for local communities.

• Olaf Kula – Executive with ACDI-VOCA, largest subcontractor to USAID. Extensive field experience developing commercial, agriculture-based community projects in West Africa.

• Harry Noyes - PhD Geologist and MBA. Formerly responsible for the creation and management of the minerals programs for the Doyon Native Corporation in Alaska.

• Jennifer Hinton – PhD Mining Engineer. Global Artisanal and Small Mining Expert. Worked in the field for World Bank on their CHASM program. Currently living and working in Uganda with the ASM community as well as local, regional and national government.

FSB MOUs

• Lowell Institute of Mineral Research at the University of Arizona. Multi-disciplinary … Engage 10 colleges and 23 departments. Provide academic rigor to understand and document examples for use in other areas

• The Mining Ministry of Nicaragua. Help develop artisanal mining including developing mineral processing plants in support of the ASM community

• HEMCO, the largest formal mining company in Nicaragua. Access to the their two operating systems for 100 tpd mills supporting the ASM community in the Bonanza mining district as well as the seven local ming co-ops

Model for Use in Afghanistan

• FSB has developed a business model to work with artisanal miners, based on two small gold mills currently operating the Bonanza mining district in Nicaragua.

• Gold is the product in Bonanza, but the model is readily applicable to other metals and minerals.

• At Bonanza, seven mining co-ops employing some 3,000 miners supply ore to two 100 tpd gold mills.

• The following sequence of slides illustrate the Bonanza model.

Specific Example Modified from Bonanza, Nicaragua

• Capital investment of $5M – build a 100 tpd processing mill (head grade $300/t … equivalent to 8 gAu/t or 8 to 10% Cu with 80% mill recovery … these grades are readily achievable with hand-selected ore) – Provides sustainable, meaningful, direct employment for 1,500 people earning $10/day – Provides an economic anchor for communities of 10k people (assumes a 7 to 1 multiplier

including families and support services) – Investment equated to approximately $3,500 per person employed and $500/community

member – Adds $7M to $10M/yr to the formal economy through wages, services and reinvestment – Approximately two-thirds of the operating cost is paid to the miners – Different wage expectations would modify these metrics accordingly. Lower wage

expectations would employ a proportionally higher number of people and support a proportionally larger community

– Sustainability … • Increase capacity of communities through broad-based training and opportunity to practice good

business, safety, social and environmental methods • Improve quality of life (safety, human-rights, economic, social and environmental)

What We Are Creating We are creating an economic foundation for sustainable communities. This is the community of Bonanza, Nicaragua. It is a mining community dependent on the formal and artisanal mining sectors. Each 100 tpd milling plant provides meaningful and sustainable employment for 1,500 miners and a community of 10,000 people. Gold mining is used in the following example. This economic system is readily adaptable to other metal mining including copper, lead, zinc and silver.

Co-op Miners High-grading Veins Five co-op miners working in a three-meter epithermal gold vein dipping from left to right. The shallow portions of this oxidized vein can be worked with simple hand tools. No explosives are necessary. Miners are selecting high-grade quartz within the wider vein and putting it into white sacks seen in the lower middle of the picture. Hand selected ore assays 3 to 30 gAu/t and averages 8 gAu/t.

Co-op Family Hand-Selecting Ore

Three members of a co-op family are breaking rocks to sort high-grade ore for shipment to the processing plant. No specific skills are necessary to mine and sort ore. Miners learn to recognize high-grade ore. When in doubt they can hand crush the rock and pan it to verify that it contains gold.

Young Co-op Miner Sorting Ore A single young co-op miner is breaking ore to be transported to the processing plant. Ore will be loaded into sacks holding approximately 55 kg. At a grade of 8gAu/t each bag will contain approximately $20 in gold. Miners are paid for half of the gold. The balance of the value pays for processing the ore including recoupment of the capital costs. Each co-op miner typically produces one sack of ore per day. For this they earn an average of US$10/day per person, depending on the grade of the ore they ship to the processing plant.

Mine Workings, Co-op Miners, Road and Ore Hauling Truck

The swarm of veins with mine working can be seen traversing from the lower left to the upper right of this picture. A simple road system has been constructed by the owners of the processing plant to assist the co-op miners with access. The truck seen near the center of the picture will be loaded with 55kg sacks of ore. The truck can haul 10 tonnes.

Loading Ore Sacks for Transport to the Mill

Loading ore sacks into a 10-tonne truck for transport to the processing plant. Miners are organized in co-ops and mining teams. The co-op arranges for transport. The operators of the processing plant pay the co-op, based on the gold contained in each 10-tonne shipment. These proceeds are then distributed by the co-op to its individual miners. 10-tonne shipments are the norm for this district. Other districts may use smaller shipment sizes, depending on the co-op and the geology.

Ore Receiving Facility for 100 tpd Mill Ore is unloaded from each truck via a conveyor. Each 10-tonne shipment is kept separate. Ore is sampled from the conveyor belt to determine its grade. Co-ops are paid immediately for half of the contained gold. The balance of the value covers processing and capital costs. Very sophisticated sampling methods are used to make sure that the miners understand that they are being paid appropriately. This is perhaps the most important aspect of this process. Without trust, the relationship between the co-op miners and the processing plant will breakdown.

100 tonne/day Gold Processing Plant

The processing plant is very simple. It can be configured to recover gold by gravity, flotation, or by cyanide leach methods. All water is recycled. Tailings are stored in an engineered impoundment facility. If cyanide is used, it is neutralized before it leaves the plant. The basic plant design can be modified to recover or concentrate other metals including oxide or sulfide copper.

What We are Trying to Eliminate Miners that do not have access to a modern gold processing plant use an arrastra, such as the one shown in the picture. This ‘technology’ is many hundreds of years old. Holes are drilled through large rocks which are then drug over a foundation of other rocks to grind up the ore. In this particular case, electricity is available to drive a motor that drags the rocks in a circle. Lacking electricity, people, burros or horses are used for power.

What We are Trying to Eliminate Gold-mercury amalgam. Typically mercury is dumped into the arrastra with the gold ore. As the gold is liberated by the grinding action of the arrastra, it is amalgamated with the mercury. The gold-mercury amalgam is then collected and heated to remove the mercury, leaving a gold sponge for sale. Needless to say, this process is very dangerous and very damaging to the environment. The mercury vapor is extremely toxic to the miners, and the tailings containing residual amounts of mercury are typically dumped in drainages or nearby hillsides.

FSB’s Mission Mitigating poverty and conflict by allowing willing hands to work in meaningful and sustainable jobs. The average wage in Nicaragua is $5/day, and there are limited employment opportunities. FSB’s Bonanza business model offers an opportunity for $10/day with minimal barriers of entry. Lack of economic opportunity can lead to conflict. In Nicaragua, many artisanal miners are drawn from the 180,000 combatants in the generation-long civil war.