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Mining Project Evaluation - Overview
The term project evaluation has very broad applicability within the mining industry. However, the fundamental concept—generating information to support decision making regarding a project—is the same for all projects or stakeholders.
The evaluation may take any form from an independent expert’s report in international arbitration to a due diligence report for a financial client, or the National Instrument 43-101 feasibility study the retail investor relies on. Most critically, to be able to undertake the most effective and efficient project evaluation, the purpose and strategy behind that evaluation must be understood: what will the project evaluation be used for and who will rely on it? Is the purpose to set a valuation in an acquisition or sale, to determine the viability of a project for a board’s development decision, to undertake a technical and risk analysis to support project financiers, to support a short-term public investment strategy or a long-term private investment strategy? Each interested party’s expectations differ and it is critical to be able to answer questions related to risk, opportunity, present value and future value, providing the best information possible within the scope of the review.
The mining industry has had more than its fair share of poor decision making in a number of high profile cases, where assets purchased just a few years ago have been sold for cents on the dollar, investments have been lost within a few years or months of being made, and share prices for some companies have reached all-time lows.
Each situation is unique and most result from a cascade of events, with falling commodity prices often the straw that breaks the camel’s back.
Commodity prices are out of the control of most mining companies, investors and other stakeholders unless they are the dominant global producer or in a niche market where they can be price setters. However, other challenges are more under the companies’ and management teams’ control. These include cost overruns on development projects, underperformance of assets, improper assessment/valuation of qualitative risks (e.g. social, permitting) and technical errors, say, in resource and reserve estimates. Understanding past mistakes and incorporating these learnings into current evaluations is necessary to prevent making the same mistakes over and over. At SRK we never assume anything and strive to verify everything that could influence value.
SRK has always been good at understanding client goals and matching its product to client strategy. However, SRK is more explicitly expanding its strategic role by developing a Corporate Advisory group. This group is supporting companies, investors and others in setting strategy to meet long-term goals and helping to implement those strategies so they are executed as envisioned.
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