Two: Importance of Technical Due Diligence in Overseas Mining Investment Activities & Case Study
2018-10-22 0 Views (2132)
As the increasing demand for quality mining projects and products in recent decades, many Chinese mining companies are finding and exploring overseas mining resource, getting involved in the activities of overseas mineral resource development in the
Importance of Technical Due Diligence in Overseas Mining Investment Activities & Related Case Study
Author：Heng Huang1，Qiang Liu2，Nengjun Yu2
3. A Cobalt Mining Concession Project in North Zambia
At the beginning of year 2018, one famous Private Equity (short for “Institution A”) planned to invest on one unexploited Cobalt mine project (short for “Project B”) in Northwest Zambia 2018, and entrusted HOT Mining to carry out due-diligence work for them. During the due-diligence work period, HOT Mining organized a due-diligence team consists of experts from geology, mining, mineral processing, legal and finance major, and led by a team leader who has over 30-year experience in geology and mining field, also engaged in many overseas mining investment projects before.
The owner of Project B has engaged many mining exploration companies and consulting companies to carry out a great deal of exploration work before, also the owner has changed several times, the former documents are complicated. This Cobalt mine project is a famous and unexploited mine in that district. According to the work plan, the team assigned an expert who has many years’ site experience in Africa and with thorough knowledge of mining and mineral processing to be stationed in Zambia site and coordinate work; as scheduling, the other domestic team members analyzed the former documents and made plan for next step site due-diligence work. In the aspect of document analysis, in order to get result of Cobalt ore reserve condition and geology information of hydrology, engineering and environment, the translation and technical analysis ground started translation and analysis of regional geological and topographical general drawing, afterwards they worked on written report and other conclusive data. The site engineer conducted field investigation and communicated with owner at the same time, and give feedback to domestic team member when any important information occurred.
The due-diligence team soon found two crucial problems, one is the hydro-geological condition restricted the possibility of deeper resource, another is the ore body on ground surface leaching thin and scattered, the main mined body trend has small scale. The resource that can be realized scale mining is only 30% of the total resource in geological report. Thus this project could only be open-pit developed in medium scale. The site work in Zambia also verified this conclusion, at last HOT Mining submitted detailed technology due-diligence report to Institution A, after discussion between Institution A and the owner, they finally adjusted the comprehensive value assessment and development scale, and finally determine this project is a great Cobalt mining project only for medium-small scale.
Although this project’s final conclusion is different from the initial judgement and anticipation, the whole project value is reduced, also development scale is adjusted. But thanks to the involvement of due-diligence, the hidden problems were recognized in time, the management concept is adjusted, which led to a successful and great medium-small scale Cobalt development project, it can be set as one of typical successful case in overseas mining investment project. The reasons why this project could control investment risk and get remarkable R.O.I are as below:
3.1 Investment institution invited and entrusted HOT Mining to do the due-diligence work timely;
3.2 The due-diligence team consists of experts from major of geology, mining, mineral processing, legal and finance; the responsibilities are clearly divided and managed, with tacit teamwork and cooperation;
3.3 Precisely grasp each stages’ work centrality, arrange the sequence of material translation and analysis reasonably;
3.4 Dispatched a group of well-organized and professional team members with strong verbal communication skills, know how timely and keep efficient communication with client and domestic team, pass and express information effectively;
3.5 Always insist the concept “only beneficial stone could be ore”;
3.6 When facing dispute, each party not only insists the merchant principle, but also communicates honestly. Although the project scale and project value evaluation is reduced, each party reaches consensus soon, and gained mutual respect and trust;
3.7 During the due-diligence period, although the investment institution thinks highly of this project, they never put pressure on the due-diligence team, and it could make the team members keep neutral position and clear mine; The due-diligence team never copy previous experience blindly from very beginning to the end, insists professional attitude based on fact and science.
From the above three cases we could recognize that, although there’re many great mining investment projects, due to the unequal information, many projects might have hidden problems, also because of the specificity of mining investment project, it’s very crucial to carry out due-diligence work by professional institution.
We draw several conclusions about due-diligence work in overseas mining investment project for reference:
1) Insist the principle of society labor division“let the profession of professional things”;
2) Due-diligence team shall consist of professional team member with all necessary majors, team framework is required, and each member’s responsibility shall be arranged properly, information system shall be “confidential for external, accessible for internal”;
3) Know the difference between resource quantity and workable reserve, insist the concept “only beneficial stone could be ore”;
4) The due-diligence team shall not have any tendency and shall based on fact and keep neutral always.
5) In technical due-diligence stage, one team member who has professional knowledge and is skilled in negotiation shall be dispatched on site to help coordination; in legal, financial and tax due-diligence stage, the ethnic Chinese who knows local issues well is better to be found to cooperate with due-diligence member;
6) Knowledge and application skill about international mining capital market operation shall be enhanced, if there’s a difficulty beyond ability, external supporting help shall be sourced when necessary;
7) Strengthen study about mineral product market and improve the judgement about product price trend and market demand.
For further information, please contact：
|Eric Liu||Kira Zhang|
|+86 13699096165||+86 15281051932|