Using Business ‘Due Diligence’ to Help Evaluate Minerals Deposits

Investment in the mining industry has increased substantially throughout the world in recent years. So have acquisitions, divestitures, and financial restructurings. The return of outside investors to the industry is welcomed. The trend toward stockholder litigation is not so welcomed. Both have provided the impetus for commissioning outside professional due diligence studies of potential minerals transactions. For a number of reasons, some unique to the industry, evaluation of mining investments is a challenging task for the investor. Investments in exploration prospects and undeveloped properties have a high speculative content. Buyers pay for uncertain future prospects. Alternatively, most developed mining investments are large and long-lived and cannot easily be modified during that life. Even so, to be successful, they must compete in an environment in which their reserves - the source of their profits - are often imperfectly known. And markets, competition, technology, and politics are among the many continually changing factors that affect investment performance. Minerals investment evaluation is further complicated because each minerals investment has its own singular combination of risks and opportunities. Each ore type and each ore body presents different problems in reserve evaluation, mining, and extraction. Each minesite has its own often unique combination of mine, infrastructure, political, environmental, and other risks. And the key requirements for commercial success differ substantially among various minerals.