MBDocs 1605972 v4

1. Mining Companies in China: International Corporate Governance Compliance — Rules, Risks and Exposures and How to Deal With Them Good Corporate GovernanceEssential for North America Public Financings and Share Issues David I. Matheson, Q.C.China Mining 2005, BeijingNovember, 2005 MBDocs 1605972 v4

2. What is Corporate Governance? • The Process and Structure — used to direct and manage business affairs of a corporation • Process and Structure — defines division of power between shareholders, boards of directors, and officers (managers), and establishes mechanisms for achieving accountability which involves auditors, regulatory bodies and other stakeholders • The Objective — enhance shareholder value — best efforts to ensure financial viability of business • Prime Concern — monitoring management to achieve the best results in the best manner • An Art Not a Science — depends on evolving best practices, regulatory rules and guidelines, judgment, attitude, effective checks and balances, actions, accountability and transparency

3. Good Corporate Governance • Internationally, no single best model of corporate governance • Worldwide, corporate governance is in a constant state of evolution, “best practices” varying from country to country and constantly being reconsidered and revised. Who is right? • Generally there is international agreement on principles • Requires good laws, guidelines and regulators and requires that those to whom rules and guidelines apply are good corporate governance followers • Values and effectiveness of any good corporate governance are influenced and based on many factors (including economy, government, history and social environment) • Requires good timing of the adoption of good corporate governance by private, public or government controlled enterprises. Sooner than later!

4. Good Corporate Governance (cont’d) • High standards required by North American investors and regulators • Full, fair and timely accurate disclosure • Stock Exchanges – rules and guidelines • Securities Commissions – rules and guidelines • Overseeing of auditors of companies by public accountability boards – such company auditors must comply with high quality and independent auditing standards • Mining industry standards • Strict and onerous compliance and enforcement

5. Good Corporate Governance (cont’d) • Canada Leading World Equity Financing Centre for Mining • 2004 — Toronto Stock Exchange (“TSE”) Raised 47% of Total World Equity Financing for Mining* • Canada — less rules and more guidelines approach to corporate governance than the U.S. More practical accommodation for smaller ventures

6. $4,169 $1,317 $988 $933 $303 $232 $201 $56 TSX-TSX ASX LSE-AIM JSE NYSE Nasdaq SWE Amex Venture TSX companies raise more equity capital for mining than on any other exchanges in the world 1,791 financings Mining Equity Financings 2004 (US$ Millions) • Mining companies raised almost three times as much equity capital on TSX than 73 on any other exchange in the world 218 4 8 1 2 1 Source: Gamah International, December 2004, Preliminary Data Compiled by TSX Group, presentation by Elaine Ellingham, Ellingham & Associates, 2005

7. CHINA Great Investment and Financing Opportunities Exist Between China and Canada Good CorporateGovernance Helps

8. Canada has Unique Strengths for Mining Companies • There are exceptional proven reserves for equity financing on the TSX and the TSX Venture Exchange. Chinese mining companies should start drilling now for those reserves!

9. Essential for A Good Corporate Governance System in Any Country • First — Good Laws, Monitoring and Enforcement • Fair and efficient process • Good judicial system • Enforcement of law • Good Written Laws and Regulations Not Enough • People subject to the rules and guidelines must have the corporate culture and desire to comply • Judges, regulators and arbitrators must be capable, kknowledgeable and effective

10. Fundamental to Good Corporate Governance • To Protect shareholders’ rights – an essential ingredient for confidence in a capital market system • Transparency • Accountability • Good Codes of Conduct that are constantly monitored and applied • Integrity of accounting, good internal systems and controls and financial reporting systems • Timely, accurate and properly balanced public disclosure of all material matters

11. Fundamental to Good Corporate Governance(cont’d) • Good Board of Directors (independent director factor) • Good leadership, management and expertise • Avoidance of Conflict of Interest “problems” • Good Risk Management – huge issue

12. Essential • Companies need: • Clearly defined written corporate governance policies: • Board and Board Committee Mandates (e.g. for audit and finance, nominating and compensating, risk management, health and safety and environmental committees) • Public Company Disclosure Mandates • Confidentiality, Conflict of Interests and Share Trading Policies • Codes of Conduct • Constant effective monitoring to make sure mandates, policies and codes are followed and improved

13. Essential (cont’d) • But action speaks louder than words! • Enron had all the words (e.g. excellent Code of Ethics), but they were not followed!

14. Good Corporate Governance • Fundamental: To be effective, you need the right people, the right corporate culture, the right issues, the right information, the right process, the right follow-through. • National Association of Corporate Directors Report on Board Evaluations: Improving Director Effectiveness, 2001

15. Need to Build a Strong Board and Board Committees Effective Independent Directors

16. Example of a Structural Corporate Governance Difference between North America and China Shareholders The North American Model Board of Directors Auditors, Legal Counseland others Officers Management

17. Corporate Governance Structural Difference (cont’d) The Chinese Model Shareholders Board ofDirectors Board ofSupervisors* Managers *Adapted from German Laws

18. Where Does China Stand? — Bird’s Eye View • The Government of China recognizes the importance of good corporate governance • Good corporate governance advances in laws and regulations • Company law — Generally very good – regularly being improved • Good progress — securities laws, regulations and guidelines for listed public companies (China Securities Regulatory Commission). Harmonize well with Canadian approach.

19. China is Focused on Good Corporate Governance • EXAMPLES: • Good Code of Corporate Conduct • Good Guidelines for Independent Directors • Independent directors of public companies: • China – requires at least one third of the board • Canada – guideline (not compulsory) “recommends” a majority be independent • U.S. – requires a majority • Good fiduciary duty and duty of care principles for directors and penalties for non-performance • Good public disclosure rules and shareholders rights • Controlling shareholders have fiduciary duties and duty of care for other shareholders

20. Improved Standards and Enforcement Needed • Concerns: • “… the overall infrastructure environment is still not conducive to achieving high governance standards.” * • Dominant role played by controlling state owned enterprises (“SOEs”) • Shortage – experienced and respected business leaders, boards of directors and supervisory committees • Some supervisory committees — may have members who (contrary to fiduciary duties) follow directions of a controlling shareholder whose interests may be in conflict with the best interests of minority shareholders *The Practitioner’s Guide to Corporate Governance in Asia; 2004 Edition, ISI publications, at page 75

21. Improved Standards and Enforcement Needed (cont’d) • Lack of sufficient “Best Practices” for incentive compensation and performance reviews • Absence of good corporate culture and mindset throughout a large segment of the business community • General lack of good enforcement of laws and rules notwithstanding efforts of many regulators and the Government • The Hong Kong Special Administrative Region does have good enforcement of laws and rules

22. Improved Standards and Enforcement Needed (cont’d) • Repeat - China needs more effective courts of law and regulator enforcement to deal with violations by listed and unlisted companies and their officers (managers), boards of directors and supervisory committees • Improved regulation and enforcement will improve foreign investment in China • China must harmonize with international mining standards and Chinese mining companies and operations must comply with such standards in order to improve their access to North American financings (further comment to follow) • A Long Road, China Needs More Time!

23. Supervisory Committees • Good concept, but concerns with it • Fiduciary duties • Who controls committee? • Controlling shareholder? • If not well chosen, could be serious problem for a good board of directors and minority shareholders

24. Insurance Investment Approach & Vehicle Confidentiality Network(GUANXI) Political Stabilities & Practices GovernmentRelations Corporate &General Laws Mining & Environmental Laws Country Culture Know How Cross – Border Barriers Taxes CountryEconomy Mining Disclosure Standards Labour Force DomesticMiningExpertise Protectionof Property Knowing Your Partner Audits SupervisoryBoards Directorships Local CorporateStructure &Mindset Code of Ethics Officers /Managers Location – RegionStandards Community &Social Demands Due Diligence Financing Fraud Internal Controls &Systems Personal – NotCorporate Interests Other Criminal Acts Dispute Settlement Corporate Governance — Concerns — Managing Risks — Risk Areas – It’s a Maze

25. Mining Companies — Managing Risks • Like anyone else investing in China: • Extensive Preparation in Advance • Partnering with right partner • Experienced advisors • Caution on shortcuts • Patience a virtue

26. Mining Companies — Managing Risks (cont’d) • Chinese mining companies who (1) want to joint venture with foreign companies or (2) seek public financings or public share listings in North America: • Must meet global standards of acceptable risks

27. Mining Companies — Managing Risks (cont’d) • Canadian example — standards of public disclosure for mineral projects: • National Instrument 43-101 and companion policies, forms and information on frequently asked questions(http://www.osc.gov.on.ca) • Applies to all oral statements and written disclosures of scientific or technical information, including disclosure of a mineral resource or mineral reserve by or on behalf of anyone who solicits financings from Canadian investors (for example, applies to a private mining company that solicits such investors)

28. Mining Companies — Managing Risks (cont’d) • It sets strict rules on: • How to disclose scientific and technical information on mining projects to public investors • Requires the reporting by “qualified persons” (strictly defined, does not include engineers or geoscientists who are not members of professional associations (defined) of designated countries. China is not designated as yet) • Prescribes form of technical report filings

29. Mining Companies — Managing Risks (cont’d) • Strictly defines technical terms – e.g. “feasibility study”, “preliminary assessment”, “mineral resource”, “inferred mineral resource”, “indicated mineral resource”, “measured mineral resource”, “mineral reserve”, “probable mineral reserve”, “proven mineral reserve”. • Strict rules on disclosure of measures of deposits • See on the website of the Canadian Securities Administrators Staff Notice 43-302 on “Frequently Asked Questions” on the extent of the application of National Instrument 43-101 and on what is required for resources and reserves, technical reports, preliminary assessments, general disclosure and exemption orders.

30. Mining Companies — Managing Risks (cont’d) • Standards in Canada and other countries are high and rightfully so. Countries are working on harmonization of their standards. • Many innocent investors worldwide have been ruined in the past because of reliance on inaccurate and false reporting

31. Conclusion • Following international fundamentals of good corporate governance both generally and specifically for mining companies opens the door to more accessible and successful global public financings and stock exchange listings for China based mining companies. • Follow the rules, mitigate the risks and maximize the returns on investments for bigger and better opportunities for all concerned.

32. David I. Matheson, Q.C. Tel: 416.865.7219 Fax: 416.865.7048 Email: david.matheson@mcmbm.com BCE Place, Suite 4400 Bay Wellington Tower, 181 Bay Street Toronto, Ontario, Canada M5J 2T3 Tel: 416.865.7000 Fax: 416.865.7048 www.mcmbm.com