wrong, something is very wrong

RISK UNDERVALUATION IN MINERAL PROJECTS

Reporting to markets should (have to!) be complete, independent and competent.

Risk is a key factor; in most cases, along with commodity price, the most important variable defining a project’s value. The importance of a good estimate of the risk measure (the discount rate in DCF models) cannot be overemphasized.

Yet, something is wrong, very wrong:

  • In most cases (in a sample of 77 documents reporting pre-feasibility, feasibility studies and valuation exercises of operating assets), the magical discount rates used in DCF are 5% and 8%, accounting for 26% and 27% of the cases (10% accounts for 17%). In 75% of the analised cases, the used discount rate is ≤ 8%. Let’s say you are an investor, would you accept a lower than 8% rate in most mineral projects?
  • The 5% magical number is pervasive in gold projects. A new rule can almost be written; IF gold THEN 5%.
  • Reports include countless pages of technical minutia and detail of doubtful utility for the average investor; yet only a handful of them has any discussion or justification of the chosen discount rate.
  • Country risk is irrelevant; I will grant that the 77 sample is relatively small but the anecdotal evidence shows that the same risk is attributed to projects in the US and Canada or in Burkina Faso and Colombia.

Please bear in mind these are preliminary results; as more data is compiled, new trends may develop. Although I tried to have a random sample, diamond and gold projects may be overrepresented (20 and 21 out of 77, respectively).

I will present these and other results at SME’s Mining Finance Conference in NYC on May 1 and 2, a little more than a week from now. If you are attending, I would like to discuss in person the reasons behind this and how should this (can it?) be remediated – or shouldn’t reporting to markets be complete, independent and competent?

Being a member of SME and of the Society of Economic Geologists – SEG I will try to discuss this issue within these professional organisations. Your comments (in person or through online fora) are always welcome.

Camissombo – Moquita – Lucapa – Saurimo – Malanje – Luanda: ida e volta

Angola 20170313 115220

A caminho do trabalho – garimpo na Lunda Norte

Um projecto de prospecção e exploração de diamantes de aluvião levou-me, de novo, a Angola.

Estreámos uma nova tecnologia (um drone acabado de comprar; como vivemos até agora sem um?), revimos velhos amigos e fizemos novos conhecimentos, falámos com garimpeiros e ouvimos a chamada muçulmana para as orações às 4 da manhã no Lucapa, experimentámos uma (para nós) inédita viagem por estrada Camissombo – Moquita – Lucapa – Saurimo – Malanje – Luanda, atravessámos e viajámos no rio Luachimo.

Viajo (e trabalho) há vinte cinco anos para Angola; nenhuma viagem foi tão intensa. Os filmes e as fotos que irei publicando ao longo das próximas semanas são para mim forma de não esquecer; para quem já lá viveu, pretexto para recordar.

A Sínese é uma empresa especializada em Geologia Económica e Análise e Sistemas Inteligentes. Fundada em 1995, a Sínese realizou estudos técnicos, económicos e de mercado, desenvolveu sistemas de informação especializados, concebeu e implementou projetos de prospecção, avaliação, mineração de recursos minerais em diversos países e continentes – Europa (Portugal), África (Angola, República do Congo, África do Sul, Angola) e nas Américas (Canadá, Estados Unidos, Brasil, Argentina, Uruguai e Equador).
Em particular, a Sínese esteve envolvida em inúmeros projetos ligados à prospecção e mineração de diamantes jazigos aluvionares e quimberlíticos em Angola e no Brasil, de pedra natural em Portugal, no Brasil e em Angola e de ouro e/ou nióbio e tântalo (nomeadamente aluvionares) em Portugal e na República do Congo, manganês e outros metais no Brasil.
A Sínese, coordenada por Luís Chambel – luischambel@sinese.pt , é constituída por uma equipa coesa, flexível e altamente qualificada, com especialistas em diversas disciplinas técnicas e científicas, desde a Engenharia de Minas, Geológica Económica e Aplicada, Sistemas de Informação Geológica, Estatística e Análise de Dados.

Vitória Stone Fair – NEW DATES

Novas datas para a Feira de Vitória – 6 a 9 de Junho 2017

News release just received:

Vitoria Stone Fair | Marmo+mac Latin America 2017 will take place from 6 – 9 June 2017, in Espirito Santo – Brazil. The event is considered the largest stone exhibition in Latin America and the most objective, economical and efficient way to develop business in Brazil, Latin America and the global stone sector.
The fair brings together an exuberant showcase, with several types of materials with colors and unique textures. Also, novelties in machinery, equipment and stone accessories for the industry. The event attracts buyers from all continents, from importers to exporters, looking for machinery, accessories and services.

Vitória Stone Fair website

 

Oil and metals: Goliath and David

Another excellent infographic published by Visual Capitalist (a few weeks ago).
They left diamonds out of the picture, a pity. They included graphite, diamond’s darker and duller brother, though; curiously enough, both markets are very similar in value (diamond production marginally smaller, at close to $14B).
Courtesy of: Visual Capitalist