Most buyers assessing mining projects prioritise the operating costs, capital costs, and cash flow. But assessing a mine’s profitability isn’t just about how much revenue it can get you.
You also need to focus on other areas. The most important ones are the quality of the commodity, compliance with regulations, the mine’s activity status, logistics, infrastructure, the market demand for the commodity, and relevant risks.
Here’s a quick guide regarding all the due diligence factors.
1. Geological Information and Estimates
The most important factor before purchasing a mine is to assess the quality and amount of reserves.
For this, you can ask the owner for the JORC (Joint Ore Reserves Committee) Code. You will spot a range of significant data, including ore grade, inferred, indicated, and measured confidence levels, recovery rates, and resource size. Advanced JORC Code data promises low investment risk.
Next, review the mine’s exploration history. This gives access to drilling logs, geophysical surveys, past exploration results, and assay results. If the last exploration was conducted recently and the results have been consistent, that’s a good sign. Otherwise, expect more exploration costs.
Study the mineralisation continuity data. This lets you know how deep the mineral exists. This tells whether the mining project will generate revenue in the long run. A mine with missing or unclear data on mineralisation continuity is at high risk.
2. Regulatory Compliance
Your next focus must be on regulatory due diligence, as Australia has stringent mining regulations. This will prevent you from buying a problematic mine.
Focus on the environmental impact assessments, water access licenses, rehabilitation plans, and export permits. Everything must comply with the latest state laws.
If the land is connected to indigenous heritage considerations, they must have native title and land access agreements. Otherwise, you may experience legal disputes during or after the acquisition.
Beware of ongoing litigation, tricky community agreements, and outstanding royalties. If you’re looking for brownfield mining projects, legacy contamination and cleanup costs are other considerations.
3. Mine Status
Depending on whether the mine is active or inactive, you need to conduct further research.
If you’re only looking for active mines, research their historical production data, extraction methods implemented, available equipment and condition, staff availability and expertise, contracts and partnerships.
Active mines have consistent cash flow and are more expensive. So, evaluate it well before acquiring it.
If you’re low on capital, inactive mines are more viable. However, learn why the owner ceased operations. Reserve depletion, a drastic drop in commodity prices, broken equipment, inadequate financing, and regulatory challenges are the most common reasons.
Make sure the price of reactivating the mine is not too high. Otherwise, it can drain all the capital.
However, finding all the available active and inactive mines for sale in Australia can be quite the challenge. If you don’t know about all the options, you may miss the right one. So, always begin the research on a reliable listing platform for all Australian mines. Look for one that lets you sort options through Australian states and territories, mentions asking prices, and lets you connect with sellers for further negotiations.
4. Logistics and Infrastructure
Logistics and infrastructure can majorly impact your mining project’s revenue generation. So, evaluate each factor in detail. Know if the site has access to roads, railway stations, and ports. Know if the water sources are reliable. What power does the site depend on? Renewable energy, grid, or diesel?
Check whether processing plants and smelters are nearby. Assess whether the site has facilities like storage and labourer accommodation.
Remote or poorly connected sites often face higher operating and transportation costs, which can significantly reduce margins.
5. Commodity Market
Assess the market demand for the resources extracted from the mine. For instance, lithium, nickel, and rare-earth minerals are in high demand as they are required for clean energy. Gold is a forever safe asset. Some other base metals have periods of high and low demand.
Evaluate whether demand for the mine’s key commodity is rising or declining. Assess the level of competition and existing supply in the market, as oversupply can suppress prices and limit profitability.
6. Risk Factors
Mines are packed with risks. High technical and operational risks can increase expenses and delay production.
Assess the risks by reviewing flooding and collapse risks, the suitability of processing technology, tailings management systems, safety compliance, and water treatment infrastructure. Go ahead only if the risks are low.
Conclusion
The path to owning a mining asset is riddled with risks, compliance issues, and hidden costs. Conducting a thorough due diligence and checking for these key factors helps buyers protect themselves from any unpleasant surprises down the road.
