Company:China Mineral Processing & Metallurgy League
Email: Bonnie@hotminingepc.com
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Two: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.
Conclusion
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：
Qiang Liu
E-mail
Whatsapp
+86 13699096165
Serena Fu
eric.liu@hot-mining.com
serena.fu@hot-mining.com
+86 15108333341
