Due Diligence - Restructuring - Environmental Compliance
Mining
Mining, or the extractive industries, is the start of nearly all manufacturing supply chains. Mans activities are centered on our primitive industries of “catch it”, “grow it” or “extract it” from the ground. From the bronze age onwards mankind has been a miner. The objective of all good mines is to extract the maximum amount of the available mineral in the most efficient way and this leads to the biggest compromise between percentage of mineral extracted against cost of extraction. As minerals have become rarer in the earth’s crust we have begun to re-work the mines of our forefathers. There are several important stages in the assessment of any mine:
Proving the resource is the most important element of any mine plan as it is the quality and quantity of a resource as well as the geology in which it lies, which will pre-determine the overall economics of mineral extraction. From the proven resource the mine plan will be selected to best suit the compromise of percentage of mineral extracted against the cost of extraction. It is this early stage that the economics are set. Any review should start by confirming the adequacy of the technique applied to proving the resource.
Mine planning is the stage at which the investor decides the life of the resource and hence the manpower and capital assets that need to be deployed. The balance of cash flow against capital investment is often overlaid with some political considerations in challenging geographies. Any review should center on the marginal cash contribution for the various mine plans that could be selected so as to model the profitability against potential changes in the market price for the mineral, logistics impacts, labor inflation, equipment life and maintenance costs.
Operating mines present a fait accompli whereby the original mine plan must now be examined and confirmed to be adequate for what is now known about the quality of the resource, the geology, market prices and the local political situation. Often mine plans can be revised to increase extraction efficiency in the face of rising mineral prices. This can be done below ground by increasing the removal efficiency or above ground by improved beneficiation of the ore. Mining techniques range from open cast, to drift to deep shaft techniques, but all require the same answer to the question, “what is the marginal cost of extracting the mineral”.
Closing mines and remediation centers on the obligations of the miner to remediate the land on which the mine workings have impacted. This cost often arrives at the closure of the mine when reduced cash flow is present. Many jurisdictions require mining companies to create a fund for remediation from ongoing cash flow but the adequacy of this fund needs to be assessed against the latest view of the costs for closure. Our review will start from the environmental context of assessing the best techniques at not excessive cost that can be applied to reducing the contaminants to the accepted consent levels. Often this requires negotiation with the regulatory authority who has different priorities from the mine operator. Finding an elegant solution that can meet the regulators justifiable concerns whilst nullifying some of the political elements can often be the difference between profit and liability.