Spotlight on Education: Determining the Core Value of Mining Projects
When one of Professor Dennis Buchanan’s doctoral candidates at Imperial College London was recently under exam stress and encountered a writing barrier, he was able to unblock it by pointing out that ‘there was no better time to do a thesis on metals and energy. finance that now.
The industry agrees the world has entered a new commodities supercycle, with base metal prices reaching record highs, from miners in the relentless pursuit of coveted battery metals to fuel the transition to the era. electric vehicles; and investors cramming into gold, a precious metal during the economic turmoil of the pandemic, triggering a new “gold rush”.
While Buchanan has authored the Mining Project Assessment Course based on the Technical and Financial Modeling Course with Edumine for 15 years, engaging with delegates living in Canada, Latin America and Europe, his early career career began as a geologist in gold and platinum mines in Africa. – some of the deepest in the world.
“My field experience was kind of self-taught,” Buchanan recalls. “I started in the South African mining industry on the production side. It was character training and an incentive to pursue a career in academia of mining.
The Edumine course: Valuation of mining projects based on technical and financial modeling takes place online July 12-16. Here is an overview of the program:
Q: How would you describe the course and who is it for?
Buchanan: The course is designed for anyone who needs to put intrinsic value on a mineral asset [and] those in financial services who need to know more about technical processes associated with projects, such as business development for investing mining companies.
Financial modeling is done online – all applications are available through the cloud. We generate fairly complex financial models in real time.
This course will provide an overview of the new critical role that mining will have in the energy transition, in particular with regard to battery metals. The type of project that can support this type of narrative ultimately needs value in terms of net present value, in terms of rate of return.
It is a look at the intrinsic value of a mineral resource. In particular, the current climate [is] a repeat of the circumstances of the climate of 2006, where a series of serious mistakes were made around the intrinsic value of the projects and [they] were overvalued for mining companies and investors for acquisitions.
I think the current situation is that people are looking very carefully at intrinsic value whether or not it is a mining company that is considering an acquisition or an investor looking to learn about the minerals industry. at the evaluation stage.
The course is really designed to blur the line [between] technical risk and financial assessment.
As people realize that you can make big mistakes by overpaying for projects – valuation has certainly become a term that’s popping up on people’s radar.
Q: What is the distinction between evaluation and evaluation?
Buchanan: Evaluation consists of examining a project and managing the various processes for building up a resource. At the end, you need to assign a value to the asset. What is it worth in terms of net present value? Is it worth $ 50 million or $ 500 million? It calibrates the terms of people’s investment portfolio.
My job is also to remind people that you can’t have meaningful benefits without
risk, and the possibility of downside. There is a spectrum of value. Ultimately what we do is place a dollar sign in front of a number … looking at a range of different deposit types.
Q: How has the pandemic affected the way assessments are conducted?
Buchanan: It affected production. [But] this industry is extremely innovative. What they did was separate groups so that they were never there at the same time. So if someone in your party feels sick, everyone can be quarantined without interrupting the operation. In terms of production, I think it was extremely well received. Much can be done, in terms of evaluation, pit optimization, remotely from a desktop.
In terms of due diligence, kicking the tires – you really have to get there. But it really was an eye opener, for many of us, how much everything can be done from a desk and how much more efficient it is to do things from a desk rather than from spending time in vehicles and airplanes.
Q: How is ESG recognized in evaluations?
Buchanan: Its environmental impact, its social license and its corporate governance. All three we’ve been talking about for ten years. Social license is essential – no matter how sophisticated your financial modeling is, unless you have a piece of paper that says you have a business license, without that social license, and with all stakeholders thinking that you have a business license. they are important parts of decision making and that there is a benefit to society, anything that is academic… will not work.
It is fundamental in the approach we use. Obtaining a mining license is not only straightforward in terms of compliance in environmental impact studies and the like. When it comes to corporate governance, the last thing you want to find is that there is doubt about the integrity of the process. Acquiring a license is seen as an opportunity. Officials understand that any suggestion of compromising the process means the investment will not take place.
Q: What has changed about the way assessments work over the past year?
Buchanan: The huge increase in metal prices has made projects that we considered marginal suddenly become interesting again. In particular, given the expected shortage of some commodities, especially copper, there is expected to be a very large deficit in terms of projected production from existing mines. The [are] certainly, I see, people are going back and looking at fringe projects that weren’t developed in the past, which might now become more viable. Projects examined in the 1980s suddenly return to the radar.
Aspects of evaluation are filtered, we collect prints in the field, applying modern techniques for estimating mineral resources, with all mine optimization software. So resources that haven’t been developed for 20 years are being used – it’s an exciting time, actually.
Read the full biography of Dennis Buchanan and that of Edumine Description of the course on valuation of mineral assets here.