Managing Financial Risk in the Mining Industry

Sagrabb T,
Organization: The Australasian Institute of Mining and Metallurgy
Pages: 6
Publication Date: Jan 1, 1994
In a company's quest for financing the development of a new mine, it will make calls on stockbroking houses and banks. The choice of the best-fit broker or banker is of great importance, and in the case of the miner, this is a house that has an intimate understanding of the mining industry, particularly one that has a solid staff complement of personnel with operating mine experience at a senior level. The most important document that the company will present to support its financing request will be the Feasibility Study. It cannot be too strongly emphasised that this document must be absolutely comprehensive and cover items including: (a) Geological review; (b) Resources and reserves; (c) Mineability; (d) Mining schedule; (e) Metallurgy; (f) Process plant description; (g) Infrastructure and services; (h) Management and operations; (i) Environmental and social impact; (j) Capital costs; (k) Operating costs; and (1) Financial analysis. The elements listed above represent major topics and require a great deal of expansion in the body of the document. Rothschild Australia Limited assists its client companies by supplying a detailed framework so that they will be in a position give the bank the information it needs to complete its technical `due diligence' study within a mutually agreed time. The client company will advance its position markedly if it uses well-known, reputable consultants to either complete or assist with the various aspects of the Feasibility Study. Such an approach will give the potential financier confidence that the company has taken a professional and unbiased attitude in determining the feasibility of the property in question. Most small- to medium-sized mining companies, both within Australia and overseas, will prefer, or will find it mandatory, to request a project funding package rather than opt for a corporate loan. This is because the company either does not want to tie all of its assets to the performance of one project, or that it is a one or two project company with no other substantial assets and is therefore unable to obtain a corporate loan. Upon receipt of the Feasibility Study, the bank will use the data supplied by the company in its cash flow analysis to build its own financial model. The purpose of this is to examine the timing of
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