Over the years of doing corporate finance in the resources space, which includes: project review and valuation, financial models, and capital raising, there has been a consistent difficulty in managing the perception of the project’s owner from both the buyer’s and the seller’s perspective regarding perceived value.
The expectations of buyers and sellers often remain miles apart. To this effect a few principles need to highlighted:
- First, a piece of ground next to a significant operational project generating quality profits does not automatically extrapolate itself into the adjacent ground. Sometimes it does, but in most cases, there is no reciprocal value between the two. Mineralization, reef thickness, grade values, to name a few can differ significantly over a few 100m to km’s. This is a very common mistake made across the continent by would-be mining entrepreneurs.
- Assuming there is a mineable commodity present, it’s mined and stockpiled for sale, at what price? Does this cover the cost of debt, labour, mining and processing, taxes and royalties, logistics cost, and leaving something on the table for shareholders to warrant the investment? Without a proven marketing plan, strength by offtake agreements, you do not necessarily have a mining project.
- Valuation models based on the deployment of new capital (equity), are not the true value for pricing of new equity. The price for new equity should be at a deep discount to the overall future value of the project invested to commercialize the project. Why should an investor pay a premium for the upliftment of the project based on his/her investment? The current owner and the new investors should share the upside from the get-go. Too often new investors are lost as project owners completely misread what the true value is at the stage of the project.
“Managing perception is critical in investing in mining projects.”
There are no shortcuts to bringing a project to account these days, just going mining without doing research is over. Projects require 3rd party sign-off from reputable professional companies, experts in these commodities.
Thereafter funding to make the project bankable through project finance from funding Institutions is only given once the equity portion of the funding has been raised and on the back of a accept signed off feasibility study by a 3rd party.
There are no shortcuts; from day one using the skills and tools of a professional organization will save you money in the longer term, ultimately making the project more robust and profitable.
 Feasibility studies are required to meet global standards such as JORC Code, Samrec, NI 43 101.
About the author – Over the past years Dean Cunningham has been the orchestrator of a number local and international transaction in the mining, downstream and energy and utilities sectors – coupled with Micofin and its strategic partners’ (Wood, Practara, NEXUS Intertrade and Africa House) objectives to take skills, technology, and capital to Africa, with a firm understanding of doing the work and creating jobs here at home.