Global Mining and Financing Issues - Seite 2

  

Zambia: Update on Mining Operations
THIS POST WAS ORIGINALLY PUBLISHED JUNE 22, 2010 Zambia: Update on Mining Operations Earthstone Holdings is in the process of rapid development of its mining business in Zambia. In our earlier posts we discussed the opportunities for doing business, investment climate and the extent of exploration of natural resources (Zambia: Another Look on Mining Investments); we also talked about Earthstone’s activities (Earthstone Holdings — African Spotlight: Manganese Dioxide); as well as issued a number of press releases (Earthstone Metals Group: Lusaka Copper Smelters,  Earthstone Metals Group: More Initiatives in Zambia – Manganese Project, Earthstone Metals Group Announces Expansion of its Operations to Zambia, Africa, with Acquisition of Exploration Rights for Copper Tenement). It is only natural, that we at the Holdings are keeping continuous track of activities of our peers in the country. In our post (Investments in Mining and Energy: Zambia) we initially mentioned some companies that are involved in mining. Here we would like to present a couple of posts that reflect the latest updates on their operations. First it is worthwhile to mention some major news updates on the Zambia’s mining business: The Steel Guru reported on June 1st that mining revenue in Zambia are expected to grow to 30% from the current 4% by the year 2013 when mining companies start making profits. The Post Zambia informed that the country’s mineral sector has the potential to produce a diversified range of minerals which can raise US $20 billion if properly managed and developed; and the copper/cobalt sector could increase its production from the current 600,000 to 1.5 million metric tons within the next five years. An interesting discussion about windfall tax and the state of mining was reported by the Steel Guru: “… production infrastructure had been dilapidated resulting in low production citing the year 2000 when copper production was only 257,000 tonnes. Infrastructure has been rehabilitated and new facilities opened up resulting in copper production of over 600,000 tones in 2009, among other benefits. Copper sales stood at 656,000 tones in 2009 while in 2008 sales were at 515,000 tonnes and 459,000 tonnes in 2007.” One of the major setbacks was the last week’s electric power failure that significantly affected mining operations. About 60 companies are listed as operational in Zambia by MBENDI . And it is impossible to describe activities of each one; many of these companies suffered setbacks from the financial crisis. Of course  the biggest in the country is ZCCM Investments Holdings Plc (ZCCM-IH) --  investment holdings company (listed on the Lusaka ,London, and Euronext Stock Exchanges). This has the majority of its investments held in the copper mining sector of Zambia. The Company’s shareholders are the Government of the Republic of Zambia (GRZ) with 87.6% of equity and private equity holders (12.4%) that are spread throughout the world. The Post Zambia reported this month that ZCCM – Investment Holdings (ZCCM-IH) has never published audited financial statements for the last four years. However, all consolidated data on investments is represented at  this page. ZCCM owns equity of the following Zambian copper mining companies: Chambishi Metals (10%) Chibuluma Mines plc Zambia(15%) in Kalulushi Copperbelt Energy Corporation (20%) in Kitwe Kansanshi Mining plc (20%) Konkola Copper Mines (20.6%) in Lusaka Luanshya Copper Mines plc (15%) Mopani Copper Mines plc (10%) Equinox Minerals (5,55%)  More information may be found at the Google Finance site. Interesting to note that there is a heated discussion in the country on the immediate stoppage of government subsidy to Zambia Consolidated Copper Mines Investment Holdings as the major shareholder who had to support the operations when the company was making losses.  One of the biggest foreign miner in Zambia is a London Stock Exchange- listed  Vedanta Resources PLC (VED.LN). the company’s assets consist of four mines, one at Konkola, two at Nchanga and one at Nampundwe, a tailings leach plant at Nchanga and a smelter at Nkana. Konkola Copper Mines - KCM (Chililabombwe) – Vedanta owns 79.4% of equity --  operates the wettest mines in Zambia and pumps out water every day to allow normal mining operations. A new smelter at Nchanga, with a total capital outlay of approximately $470 million, is expected to have a capacity to produce annually 300,000 tpa of copper anode and 1,850 tonnes per day of sulphuric acid. Feed concentrates are expected to be primarily from KCM’s own mines. Here is a brief summary on the Zambian operations from the latest corporate presentation:    World class resource 471mt of Reserves and Resources 12mt of contained Cu, 25+ years average mine life Konkola mine grade of 3.6%; average KCM grade of 2.5% Well invested production facilities Nchanga smelter achieves rated capability in capacity and recovery KDMP mid-shaft loading – 31 March 2010; Project on track $1.5 bn capital investment Key deliverables Growth from 133kt production in FY2009 to exit capacity of 400+ kt in FY2012 Further cost reduction and stabilization, targeting < $1.00 / lb in cash cost Resource growth through exploration Largest mining investment in Zambia Strong working relationship with Zambian government Healthy labour relations Committed to training and developing Zambia’s workforce Local communities: health, education and welfare programs  This concludes the first part of update on mining operations in Zambia. More to follow…..

Mining Investments - WHERE NOT TO INVEST by Behre Dolbear
THIS POST WAS ORIGINALLY PUBLISHED MAY 19, 2010 Mining Investments - WHERE NOT TO INVEST by Behre Dolbear One of the oldest mining consulting companies in the world Behre Dolbear provides quality advice for mining investors worldwide, and their documents are well respected by industry professionals. Indeed, when making the right decision about investment strategy it is important to take into consideration as much information as possible.  Since 1999, Behre Dolbear started a political risk assessment of countries important  to the mining industry. This is alleviated by the fact that mining industry is vital to the creation of wealth and prosperity in any country. The  Behre Dolbear's assessment includes the high risk and low risk parts of the world for receptivity to mineral investment, as well as information about conditions in the countries such as economic and political systems, social issues, permitting, corruption, etc. It interesting to note that the company has a very peculiar stance regarding their report, as it is mentioned in the preface: "We recognize that many might consider what we have said to be provocative, which is our intent."  However, whatever provocative their findings are, they are nevertheless valuable  both in staregy panning and execution of everyday business. This is not technical assessment, as one might expect -  "Geology and mineral potential were not considered, as the fact that exploration, development, and mining activity are occurring confirms the existence of such potential. We recognize that if a major mineral deposit exists in a high-risk country, a mining company might well decide that the financial incentive exceeds the political risk; e.g., Barrick’s Reko Diq project in Pakistan and Banro Corporation in the eastern Democratic Republic of the Congo (D.R.C.)." The countries are ranked by the following criteria: the country’s economic system; he country’s political system; the degree of social issues affecting mining in the country; delays in receiving permits due to bureaucratic and other delays; the degree of corruption prevalent in the country; the stability of the country’s currency; and, the country’s tax regime. So, this make another essential document that any mining professional has to read and study It can be downloaded HERE

Doing Business Worldwide - World Bank Project
THIS POST WAS ORIGINALLY PUBLISHED MARCH 24, 2010 Doing Business Worldwide - World Bank Project When entrepreneurs are trying to expand their business vision and find new applications for their business acumen, they usually start thinking of going to other countries of the world besides those their business is in at the time being. Thus, they require a lot of information about how to start a business in new jurisdiction, and usually seek for some good resources. Here I would like to point to a very functional one – a project of World Bank - the Doing Business project. It was launched 8 years ago and looks at small and medium-size companies and measures the regulations applying to them through their life cycle for many countries of the world. The first Doing Business report, published in 2003, covered 5 indicator sets in 133 economies. In 2010 it covers 10 indicator sets in 183 economies. The project has benefited from feedback from governments, academics, practitioners and reviewers. The initial goal remains: to provide an objective basis for understanding and improving the regulatory environment for business. Doing Business provides a quantitative measure of regulations for starting a business, dealing with  construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business—as they apply to domestic small and medium-size enterprises. It encompasses 2 types of data. The first come from readings of laws and regulations. The second are time and motion indicators that measure the efficiency in achieving a regulatory goal (such as granting the legal identity of a business). Seven years of Doing Business data have enabled a growing body of research on how performance on Doing Business indicators—and reforms relevant to those indicators—relate to desired social and economic outcomes. Some 405 articles have been published in peer-reviewed academic journals, and about 1,143 working papers are available through Google Scholar. So, I strongly recommend to look into it and thoroughly analyze the data before going to any country.

Top Challenges Facing Mining Companies – What is New?
THIS POST WAS ORIGINALLY PUBLISHED MAY 24, 2010 Top Challenges Facing Mining Companies – What is New? “The mining sector is entering a time of amazing opportunity. As companies take steps to improve their strategic focus and shore up long-term operational gaps, they can ideally position themselves to benefit from the next boom cycle.” David Quinlin, Partner, Zurich, Switzerland This was said way back in 2008, when Deloitte produced a study “Tracking the trends 2009. The top 10 global mining issues”. This report identified the ten most pressing global challenges facing the mining industry at that time: 1. The commodity price rollercoaster Is this a short-term phase or the new norm? 2. The double squeeze. Caught between higher costs and lower prices 3. Capital punishment. Tight credit markets put expansion at risk 4. Running on empty. Talent and equipment shortages remain chronic 5. Risky business. Permitting, politics and tax policy volatility 6. Location, location, location. Quality assets are getting harder to find 7. The urge to merge. Consolidation remains an industry imperative 8. Towards sustainable development. Environmental concerns continue unabated 9. The cost and complexity of compliance. Preparing for a tighter regulatory environment 10. In the dark. Electricity shortages affect operations Well,  18 months later, it seems that these concerns remain basically the same. Beginning of 2009 was marked with fast pace of Chinese companies on the M&A market. This year, it looks like the new pandemic is spreading – affecting No. 4 and 9 of the above. The latest initiative of the Australian Government on taxes is being picked up in the world. “Brazil and China may follow Australia’s lead. India and the Democratic Republic Congo have since promised new mining taxes. There could be major consequences for the industry. Multiple windfall levies could push up metal prices by 10% to 15% longer term, according to UBS.” – this is Wall Street Journal. So, miners have a lot to think about…. Another view on miners’ concerns was highlighted this month by the new study , “The Mincom Annual Study: Mining Executive Insights”. This done by Mincom, a leading provider of software and services to mining companies worldwide; being the first in a series of research studies designed to gauge perceptions of key stakeholders in the mining industry. The list looks as follows (percent of responders): Ensuring workplace safety (71 percent) Improving performance and operational effectiveness (67 percent) Managing capital projects (46 percent) Recruiting and retaining a skilled workforce (38 percent) Addressing environmental concerns (37 percent) It interesting to note that the new issue emerged: Ensuring workplace safety.  “Workplace safety is a complex topic that encompasses cultural, equipment, work management and safety feedback mechanisms. It is also an area impacted by many of the other top challenges that mining executives face. When accidents happen, they make headline news, putting companies and their business practices under the spotlight.” It is true and we have seen a lot of unfortunate examples in recent months. Over 73% of respondents stated the top action their company is taking is to build an accurate operational model that links predictive production costs to operations and finance – no other action comes close in terms of urgency: Another worth mentioning fact is determination of biggest obstacles to organic company growth: For all mining companies, the top obstacle to organic growth is “complying with government regulations.” For coal mining companies – “decline in market demand” was the biggest hindrance. For gold and copper mining companies – “delays in getting new mines operational”. I am sure that this year will bring more and more anxiety to the mining business, but nevertheless, I still think that we should be optimistic!!! Download the “The Mincom Annual Study: Mining Executive Insights” HERE

African Mining: Tanzania
THIS POST WAS ORIGINALLY PUBLISHED APRIL 30, 2008 African Mining: Tanzania Location:   Eastern Africa, bordering the Indian Ocean,  between Kenya & Mozambique Area:   945,087 km2 Border countries:   Burundi, Congo, Kenya, Malawi, Mozambique, Rwanda, Uganda, Zambia Population:   40.2 M Capital:   Dodoma (legislative capital), Dar es Salaam Time Difference:   GMT +2 (Jakarta -4) President:   Jakata Kikwete Major infectious diseases: degree of risk: very high; food or waterborne diseases: bacterial diarrhea, hepatitis A, and typhoid fever Vectorborne diseases :             malaria and plague Water contact disease:             schistosomiasis  Natural resources:   tin, phosphates, iron ore, coal, diamonds, gemstones, gold, natural gas, nickel Official languages:  Swahili, English Industries:  agricultural processing (sugar, beer, cigarettes, sisal twine);   diamond, gold, and iron mining, salt, soda ash; cement,   oil refining, shoes, apparel, wood products, fertilizer Export Commodities:   gold, coffee, cashews nuts, manufacturers, cotton Export Partners:   China, India, Netherlands, Japan, UAE, Germany Import Commodities:   consumer goods, machinery & transportation equipment,   industrial raw materials Import Partners:   South Africa, China, Kenya, India, UAE, Zambia Exchange Rate:   1 dollar (USD) = 1,255 Tanzanian shillings (TZS)   Scope:Mining makes up about 50% of country’s annual earning. Large scale mining employs about 8,400 people;   small scale (artisan) 20,000. Investment climate:  • A globally competitive tax and regulatory regime for mining investors  • Accelerated and simplified handling of investment proposals  • Guaranteed access to foreign exchange for repatriation of profits  • Investors are protected against nationalization  • Property guarantees under Multilateral investment Guarantee Agency Mining Tax:3% royalty to government; 30% corporate tax after the mining company becomes profitable. Offset   equipment and machinery costs against earnings Major mining companies:   AngloGold Ashanti, De Beers, RandGold, Barrick Gold, Resolute Mining Minerals:   Coal: substantial resources of low sulphur coal, but currently on small scale exploitation. Major coal deposits are located in the Lake Nyasa and Karoo Super Group.    Iron Ore: several settings of deposits — North of Ruhuhu River. Base Metals: most notable — copper and lead. Zinc — never produced in country.

Earthstone Holdings — African Spotlight: Manganese Dioxide
THIS POST WAS ORIGINALLY PUBLISHED MAY 11, 2010 Earthstone Holdings — African Spotlight: Manganese Dioxide In pursuit of its operational development plans, Earthstone Holdings has substantially stepped up its activities in Africa, and Zambia is being the key focus. Dr. Surendra Kumar Sarangi M.Sc., Geology, Ph.D., from Geomin Consultants Pvt Ltd is spearheading Earthstone’s efforts in geologic valuation of opportunities in Zambia. To this end a pilot process was established that is operationally testing the sales and delivery procedures for manganese dioxide.  Our pilot site produces manganese dioxide: It is initially sorted and then transported in the bags to the storage facility at the town of Mansa: After sorting and testing at the laboratory at the storage facility the ore is being transported by railway to the port of Dar-Es-Salam for the sales to the customers. Although at this time the described operation has a pilot character (nonetheless, with actual sales), we feel that within a few weeks we will be able to start full-scale sales process. Of course this process is a supplement to regular production, and much is being done in this sense. We are in discussions with a number of local producers, and actually a full-sized roll-up process is under development. We are also in agreement with several mining entities that are willingly delivering their ore for our processing and sales. Current plans call for production level of 20,000 tons of manganese dioxide by the end of 2010. It is only natural that operations in a new country require a solid logistic support. In just a little bit more than two months the Holdings has set up its Lusaka Headquarters in this beautiful part of the city: Our facilities include a fully equipped office and comfortable guest houses. The area around our mining operations in Luapula Province (about 800 kms off Lusaka) – the city of Mansa – shall be the hub of local activities. At this time the local headquarters office is under refurbishment – that, besides logistics facility, shall also include comfortable guesthouses and communications hub. This is only the beginning of our extensive exploration and mining efforts in the country and we will report more in our subsequent posts.

Investments in Mining: South Africa – Part II
THIS POST WAS ORIGINALLY PUBLISHED APRIL 08, 2010 Investments in Mining: South Africa – Part II South Africa is one of world’s leader in mining. The country has an abundance of mineral resources that  account for a significant proportion of both world production and reserves; while South African mining companies dominate many sectors in the global industry. South Africa’s position as the largest gold producer in the world was lost to China in 2007. Gold now contributes about 5.8% to GDP; precious metals account for 65% of the country’s mineral export earnings and 21% of total exports of goods. In the mining industry about 460,000 people are working, and 400,000 work in suppliers and services. Source: South Africa Major Business Sectors Compiled by: Swiss Business Hub South Africa Contribution of mining to the South African economy. The mentioned below Annual Report of The Chamber of Mines of South Africa cites the following: “Perhaps the best way of illustrating the role that mining plays in the economy is to temporarily “remove” the mining sector from the economy and then to reflect on the actual economic contribution. With mining temporarily removed, the economy would lose: about 18% of GDP over 50% of merchandise exports about 1 million jobs about 18% of gross investment (9% directly) approximately 30% of capital inflows into the economy via the financial account of the balance of payments about 35% of the market capitalisation of the Johannesburg Securities Exchange (JSE) 93% of the country’s electricity generating capacity about 30% of the country’s liquid fuel supply the largest contribution by value to black economic empowerment in the economy about 20% of direct corporate tax receipts (R33-billion in 2008).” According to the data from Department of Minerals and Energy current South African mining operations include: 145 diamond mines 64 coal mines 49 gold mines 28 platinum-group metal mines 59 different minerals from 993 mines Mineral exports to 82 countries Despite the fact that South Africa’s mining industry is over a century old, it is still not developed to a full range. While holding the world’s largest reserves of gold, platinum-group metals and manganese ore, the country has considerable potential for the discovery of deposits in areas yet to be explored.  Only two strategic minerals – crude oil and bauxite – are not available in South Africa. There are five basic mineral categories that are well developed: precious metals and minerals, energy minerals, non-ferrous metals and minerals, ferrous minerals and industrial minerals. Those who are interested in geologic aspect, may read a relevant Chapter (Rocks for Crops: South Africa) of  Rock for Crops by Professor Peter van Straaten – that has a wealth of information on mining in various countries of Africa. The Chamber of Mines of South Africa in their 2009 Annual Report provides a detailed picture of what is going on with mining in the country.  In fact I would highly recommend every mining professional to read this – a very comprehensive analysis of world mining trends and of South Africa’s position. This is a quality document done by the quality staff. As an example, I would like to reproduce the following graph: As it is mentioned in the Report presently mining is done by the following companies: Coal: Anglo Operations Limited, Anglo Coal Division; BHP Billiton Energy Coal; Exxaro Resources Limited; Kangra Group (Pty) Limited; Kuyasa Mining (Pty) Limited; Optimum Coal; Sasol Mining (Pty) Limited; Siyanda Coal (Pty) Limited (t/a Koornfontein Mines); Total Coal South Africa; Tweewaters Fuel (Pty) Limited; Umcebo Mining (Pty) Limited; Xstrata Coal South Africa Base metals/minerals & exploration companies: ASA Metals (Pty) Limited; Delta Mining (Pty) Limited; G&WBase and Industrials (Pty) Limited; Imerys South Africa (Pty) Limited; Randgold and Exploration Limited Chrome mining: Samancor Chrome Gold mining: African Rainbow Minerals (Gold) Limited; AngloGold Ashanti Limited; Gold Fields Limited; Harmony Gold Mining Company Limited; Pamodzi Gold Iron ore mining: Kumba Iron Ore Limited Platinum mining: Anglo American Platinum Corporation Limited; Impala Platinum Limited; Lonmin Platinum Limited; Ridge Mining When you go to the Web-sites of mentioned companies via provided here URLs – you may find a lot of information on mining of relevant minerals. Apart from its abundant mineral reserves, South Africa’s strengths include a high level of technical and production expertise, and comprehensive research and development activities. Current situation in the industry is interesting. In February 2010, mines minister Susan Shabangu told media that the government will not nationalize the country’s mines ‘in my lifetime’.  It seems that currently  the mining industry is remaining optimistic despite of the youth league’s threats, however Anglo American states that it remains confident in the South African government’s commitment to free market policies. And everyone is waiting for release to public of review of the country’s Mining Charter. Business Monitor International  forecasts that South Africa’s mining sector will reach a value of US$37.38bn by 2014. In the near term, growth should bounce back from the depressed levels of 2009, as the country is likely to be among the first to benefit when the global economy returns to strength. As usual, some helpful links: THE ROLE OF MINING IN SOUTH AFRICA BEYOND 2010 Rocks for Crops: South Africa Geological Society of South Africa (GSSA) The Chamber of Mines of South Africa Coal deposits of South Africa – the future of coal mining in South Africa by Stephan Schmidt South Africa Major Business Sectors Compiled by: Swiss Business Hub South Africa South Africa: Summary of Coal’s Industry

Investments in Mining: South Africa
THIS POST WAS ORIGINALLY PUBLISHED APRIL 04, 2010 Investments in Mining: South Africa A few days ago a 2010 Mining Summit was held KwaZulu-Natal that discussed key issues affecting South Africa’s the mining sector’s global competitiveness and other matters of concern. Among others the summit recommended that the macroeconomic environment and its potential to attract investment to mining needed to be researched – including the tax and finance issues that could encourage investment into exploration and mining. As Earthstone in expanding its operations in the continent, South Africa seems our next step. Hence, I would like briefly to present what opportunities do we have in mining sector. To begin with –  here is how South Africa looks for investors: One of the most sophisticated and promising emerging markets, offering a unique combination of highly developed first world economic infrastructure with a vibrant emerging market economy One of the world’s 26 industrialized nations Regarded as the gateway to Africa. Has the largest economy on the African continent about 25% of the continent’s GDP. World Bank ranks the country 34th in the world for the ease of doing business in 2010 JSE Securities Exchange is one of the world’s top 20 exchanges. This slide demonstrates investment environment: Source: Department of Trade and Investments Major incentives for investors may be found at the TradeInvestSA Web-site that offers investors and business people free access to specific investment and trade opportunities in South Africa. Some of them are: Foreign Investment Grant – To compensate qualifying foreign investors for the cost of moving qualifying  new machinery and equipment from abroad to SA. Strategic Industrial Projects  (SIP) —  incentive program designed to encourage investments into South African operations from both local and foreign investors. Its primary aim is to contribute to the growth, development and competitiveness of specific industry sectors by providing industrial investment allowances, in the form of tax relief, to qualifying industrial projects. Critical Infrastructure Fund - Infrastructure projects intended to service IDZ, shall qualify for a grant of 30% of the qualifying infrastructure development cost. The minimum qualifying infrastructure development cost is R15m. A realistic picture on investment climate is reported by Behre Dolbear 2010 RANKING OF COUNTRIES FOR MINING INVESTMENT: “ A year ago, Behre Dolbear took a wait and see attitude in regards to South Africa. As it turned, out South Africa was stable, but uncertainty continued regarding the direction of President Zuma’s government. There is continued worry about its ability to deal with the daunting social problems in the country while promoting investment that would provide the money to meet those needs. Fears of impending large-scale land seizures of white farms, nationalization of businesses, and that the country will follow the path of Zimbabwe have subsided somewhat. The electricity rate increases proposed to take effect over the next three years will prove to be a huge cost hurdle for South Africa’s deep mines and will make many of them marginal or uneconomic. The overall power shortage and inflation continue to plague the economy.” An interesting Table that summarizes possible ways to invest in mining was presented  by IFC: Partnering with IFC Addressing Challenges in Africa. I think that these are general ways, not only for IFC: To read more about investments in South Africa – go to this Web-site

Want to Sell a Mining Property? - CONSULTANTS' ROLES
THIS POST WAS ORIGINALLY PUBLISHED JANUARY 13, 2010 Want to Sell a Mining Property? - CONSULTANTS' ROLES We continue with outline of activities that the mining assets owner is bound to do before the sales efforts. ONE NOTE. I do not pretend to be the Guru - but the reason is to provide some guidance... Let us assume that you have a very early stage of development mining asset. Therefore, natural steps in this business shall be: 1.  Further exploration effort: drilling and taking assays and all other associated geologic works. Depending on the situation, this may take 1-2 years and consume USD$ 3-6 M 2. Deposit valuation – according to JORC. This may take from 5 to 7 months and consume USD$ 150,000-500,000 3. Arrangements for fund raising or sale – may take for 9 to 12 months As a rule mining companies are able do themselves all routine mining business: getting necessary permits and licenses, setting up relevant business procedures, forming a quality team (managers, engineers, geologists, accountants). However, at a certain stage there is a necessity of engaging of a quality financial and M&A consultant – either a person or a company. Why is it so important? It is only natural, that the owners of any mining business would think sometime about attracting financing and/or sale of their business. Being mining professionals, as a rule, they have a little of experience in investment banking and M&A. However, there is a whole set of rules in these two industries; and once a variety of parts is not in the picture – it becomes extremely problematic to speak with financial community. Therefore, it is particularly essential to attract experience consultant as early as possible – in this way there is nice opportunity to save a lot of time and effort in future. At the early stage, financial and M&A consultant may assist with the following: However, at the follow-up stages of buying and selling financial consultants are the major players:

Want to Sell a Mining Property? Due Diligence
THIS POST WAS ORIGINALLY PUBLISHED JANUARY 17, 2010 Want to Sell a Mining Property? Due Diligence In this post I will provide some guidance as to the issue: what to expect from the Buyer side – when they receive you offer to buy a mining property. As we usually buy something, we, as a rule, perform some sort of investigation before this. This is very true for everything, especially business. In business transactions, this sort of investigation is normally referred to as Due Diligence.  This term originated in the USA in section 11(b)(3) of the Securities Act of 1933. Since this year evaluation process, related to various transactions, in the USA has been termed ‘due diligence ’. Mostly it includes: investigation into the acquisition of a company or assets in a commercial context; risk analysis in financing; general pre-contractual enquiries. Investopedia defines: Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer’s ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed. There is tons of information on the Web, regarding Due Diligence – some of links are provided at the end of this post. For mining industry — John T. Boyd – one of the leading world experts in mining has the following definition at their Web-site: “Mining Due Diligence Definition: appropriate level of study by knowledgeable professionals to identify and assess significant factors affecting the future operation of the subject mining property.” Due Diligence is required and conducted no matter at what stage the mineral property is: prospecting, exploration, resource definition, reserve estimation, development, production or reclamation. Due Diligence is the assessment of a project/company undertaken by a potential purchaser. The results of this assessment are used to assess project risk profile, value the asset and decide the purchase price. The following graph represents some of the typical issues: When you are selling Exploration Project or Joint Venture Partnership – as the rule the Due Diligence Process is focused on identification of exploration potential or “blue sky” of the property or properties being sold. Of course, one of the major elements is the site visit; however, in some cases this is not implemented. The due diligence expert usually has a good expertise and exploration experience in the type of deposits; and his effort results in identifying both the positive and negative aspects of the property to be sold. Prior to commencement of on-site due diligence a legal review is conducted to ensure that the property can be acquired and that the acquisition will not trigger any first right of refusal issues. In case of Producing Properties a big team might be involved in Due Diligence – the one that consists of professionals from geological, mining, metallurgical and environmental disciplines. All contracts for all aspects of the mine operations shall be reviewed, including but not limited to permits, sales or hedging contracts and union and employee contracts. The team shall make a site visit to evaluate the current condition of the assets to be sold; both the physical assets as well as the personnel involved in operations. The following particular issues may be investigated: the existing reserves within the mine; any modifications that can be implemented immediately to reduce costs or improve recoveries; possibility of expanding the reserves with near-mine exploration; mine infrastructure and equipment may be evaluated and valued as part of the due diligence process. So, basically this concludes my short overview of Due Diligence as a part of selling the mine process. More detailed information may be found on the following links: Google Books provide two very useful sources: The Due Diligence Handbook by Linda S. Spedding Due diligence: the critical stage in mergers and acquisitions By Peter Howson A very good example: Case Study in Due Diligence – Southern Arc Minerals . In this particular case the following areas were examined: management; geologists; company strategy; geopolitics; right to exploit; disclosure of technical data and assay results; valuation of resources; risks and assumptions Due Diligence Checklist Mining Investors. Understanding the legal structure of a mining company and identifying its management, shareholders and relationship with the financial markets. By MiningWatch Canada Overview of mineral property appraising Due Diligence Reviews: Assessing Effective Acquisitions by Gilles Arseneau, Ph.D., P.Geo The Checklist for Mining Due Diligence is provided in this article: Independent Engineer / Due Diligence Reviews Due Diligence in Mining at Infomine OECD Pilot Project in the Mining Sector: Promoting Responsible Investment through Enhanced Due Diligence DUE-DILIGENCE REVIEW AN ESSENTIAL PART OF PROJECT FINANCE Pincock, Allen & Holt (PAH) is a consulting and engineering firm serving the international mineral resource industry