1. Due Diligence Review of Gold Property - Engineering & Construction Company
Due diligence review of a gold property in Nevada, U.S.A. that was being considered for acquisition by our client. Our client was an engineering and construction firm (specializing in serving the petroleum, natural gas pipeline, power, water and communications industries) that was seriously considering entering the gold mining business. This assignment evaluated the feasibility of this ore deposit. It entailed examining the (a) reserves; (b) permits status; (c) mine conditions and methods; (d) metallurgical process and recoveries; (e) infrastructure; (f) environment; and (g) capital requirements.
The A&S assignment was to review these data and properties and provide opinions on:
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The opportunities, risks and potential economics of the property; |
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Whether the opportunities were sufficiently favorable for the client to warrant investment; |
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Next steps and their costs in the event further development work was undertaken. |
For this work A&S' team comprised a gold exploration geologist and a metallurgist with extensive experience in gold operations and gold property evaluation assignments. Both A&S consultants had prior experience as CEOs of junior U.S. gold mining companies. Following the analysis, our client asked us to conduct a due diligence review of another property considered for acquisition by our client. (736-1/2)
2. Due Diligence for Major Financing - Global Investment Banking Firm
On this assignment, we used our knowledge of mining operations and the mining business to (1) forecast the cash flow, and (2) identify potential risks so that cash flow from a group of mining properties being acquired by a company for which the Investment Bank, our client, was acting as financial advisor and arranging for the financing. The Bank used our inputs and forecast as the basis for the financial structure of the acquisition.
The work entailed our visiting each of 30 separate underground and surface mines owned by the seller. Given the unavailability of data, we had to develop basic operating and cost information on each of these mines to include likely future capital expenditures. We also had to identify principal risks to the investment and quantify same. (723-1)
3. Due Diligence of a Major Phosphate/Fertilizer Company - Global Investment Bank
The company had mines, beneficiation and chemical plants including a sulfuric acid plant, an ammonia terminal, as well as pipeline facilities.
We provided (a) assurances to the investor that there are no surprises that could impact on cash flow, earnings, and future capital costs, and (b) independent judgment on key facets of the business to include reserves, mines, plants, markets and mines, customers, etc., that supported the judgments made in "a" above.
Our work involved a review of the reserves in terms of quantity and composition, mineability, processing plants, marketing prices, relevant legislation and management. The specific areas examined involved the following:
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Mine plan (mine life, cost of operation, equipment status, especially drag lines, adherence to all government rules and regulations, adequacy of capital replacement schedule, new capital needed above and beyond that set forth in the replacement schedule, permits, environmental issues and union); |
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Processing plants (supply agreements, if any, for ammonia programs generally, production costs and efficiencies, capital bottlenecks, permits, transport facilities, and environmental issues); |
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Marketing (national sales contracts, International sales contracts, spot market sales-domestic, spot market sales-international, export issues, membership and effectiveness of export associations for rock and acid, U.S. wholesale distribution, competition, strength and weaknesses of the phosphate/fertilizer company vs. competition); |
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Relevant legislation - present and future (federal, state and county); |
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Management (organization, key personnel location, sales organization, distribution organization). (676-1) |
4. Multi Business Review and Analysis - Confidential Client
A large North American metal producer engaged A&S to conduct due diligence on a large natural resource firm headquartered in Australasia with operations around the world. Utilizing a team of 23 professionals, A&S first prepared briefing summaries for the minerals with which our client was not familiar. This included supply-and-demand projections as well as selling price estimates.
The team then reviewed all the data made available by the target company in a data room. Quantities, selling prices, operating costs and capital expenditures were calculated and supplied to the client, which incorporated them into its economic model. Written reports were prepared for each line of business.
The need for absolute secrecy - which meant no access to operating or technical personnel, coupled with a very compressed time frame and no site visits - added to the complexity of the assignment. (775-1)
5. Operational and Financial Support for a Financing - Major Investment Bank
A&S was retained to advise our client regarding its loan to an Investment Management Group for the purchase of a coal mining company whose principal assets were two mines in the Wyoming portion of the Powder River Basin. A&S assisted the client in the following areas:
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Development of a financial model; |
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Development of a sound, workable operating plan for both mines; |
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Advised on necessary mining equipment; |
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Reviewed capital and operating costs; |
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Prepared a coal demand and price forecast; |
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Confirmed mineable coal reserves; and |
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Developed tests to demonstrate productive capacity at the newly constructed mine. (759-1) |
6. Strategic Study of U.S. Appalachian Coal Mining Industry - Major Oil & Gas Company
We evaluated the investment climate and requirements necessary for success in the Appalachian coal mining industry, including reserve acquisition, market potential, production, labor, sales approaches and marketing methods, transportation, exports, and external relations. (327-1)
7. Technical, Operational and Financial Reviews and Analyses - Major Global Investment Bank
Due diligence and valuation assistance regarding sale one of the largest multi-business resource companies ("the Firm"). In 1989, A&S acted as a Mining Consultant to the Investment Bank in the sale of virtually all of the Firm's mining assets to another major multi-national resource company. Both firms were headquartered in London, England and, at the time of the transaction, had mining properties in many countries of the world. A&S' valuation of the transaction was US$4.3 billion.
Our main assignment was to provide the Investment Bank with our views of projected operating and capital costs, production levels and reserves as well as our views on the fair value of the mining properties, which at the time included the following:
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United States - a world-class open pit copper mine and smelter; six wholly or partially owned gold mines; an underground polymetallic mine and concentrator producing silver, gold and zinc; and a silver copper property. |
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Canada - the world's leading titanium oxide producer. |
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Mexico - a silver mining company. |
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Brazil - several tin mines including a tin smelter near Rio de Janeiro and a small gold mine. |
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Norway - a zinc smelter and refinery. |
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Zimbabwe - a lithium mine. |
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South Africa - a world-class producer of titanium, minerals and zirconium from beach sands; two gold mines and a diamond mine. |
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Papua New Guinea - Lihir Island gold deposit, rated world-class. |
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Indonesia - a gold-dredging operation. |
In addition to the above, we were asked to prepare a fair value estimate, namely what a prudent buyer would pay for each property in 1989. We listed, in each case, a number of potential buyers to test the reality of our estimate. Preparing these valuations we took into account: reserves, existing mines and/or plants, future capital expenditures, world markets and relevant prices, political risk, environmental risk, and management risk.
In the case of the copper mine, we assembled a group of copper mining and smelting experts, visited the site and discussed the prospects with management. In the case of numerous other properties, we examined the company records and material available to the Investment Bank in its London office.
In the case of some 30 exploration projects, we studied the status of the exploration, any available feasibility studies, monies already spent and future budgets, the specific commodity identified as being available for mining, the size of the reserves, the maximum annual potential mine output and various risk factors that exploration geologists and mining engineers had already assigned to the prospect.
Additionally we investigated the risk factors associated with the geology, the potential mining method, the likely metallurgical process, the infrastructure requirements, the environmental prospects, the environmental risks, future exploration potential in the acreage under control, the likely markets and relevant prices, should a mine be practicable, and the political risks.
In situations where the Firm owned shares in a company, we tested P/E ratios, cash flow projections, and trading ranges of stock.
In 100%?ownership situations, we examined comparable transactions, payout times on cash flow, DCF return estimates, premium values due to size of reserves when in excess of a 10 year mine life.
For all of these properties, we determined the low, high and probable fair market value and in that manner, arrived at US$4.3 billion as the most likely price for this world-class transaction. (668-1)
8. Review of Operating Effectiveness of a Beneficiation Plant - Major Latin American Fertilizer Producer
We and our associated engineering firm reviewed recovery and determined whether, through modifications, recovery could be improved. We advised the client, a major Latin American fertilizer company, recently privatized, that increased recovery from 44 percent to 50 percent could be attained by improving the efficiency of the screening/grinding section of the plant to enhance liberation of course phosphate to the finer sizes. We also determined that plant capacity could be increased, assuming changes in the existing screening, flotation feed, addition of two more conditioning tanks, and changes in the operation of the existing pumps. (724-4)
9. Assessment of Reverts - Major Public Accounting Firm
The work was done in the northern Michigan in the winter, which was made more difficult as the secondary pile was partially covered by snow.
The work involved our inspecting the copper concentrate and scrap revert stock pile as well as viewing the metal follow-through and answering the questions of the accounting firm. Our output consisted of our estimate of the amount of contained copper in the secondary pile. (706-3)
10. Due Diligence of Investment in a Large Major Commercial Bank - Mining and Processing Engineering Firm
The client, an equity venture partner and a mezzanine-floor financer department of a major commercial bank, arranged a leveraged buyout of a major industrial Fortune 500 company that provides technical services to the U.S. coal and minerals business. The client requested from A&S a risk analysis of its proposed investment, which had two separate businesses, i.e., (a) a design engineering and construction firm of coal washing plants and (b) a general consulting engineering firm to the hard rock business in the western United States. (710-1)
11. Technical and Financial Support - Major Investment Banking Firm
Conducted due diligence study on behalf of the Bank's review of a major gold project, owned by a multi-mineral mining company in connection with a convertible stock issue to be traded on the New York Stock Exchange. Gold output at the mine would largely support the required cash flow to retire the preferred stock.
Our assignment involved intensive review of the company's geological work and drilling programs and an in-depth review of all the geostatistical programs. A&S' conclusions were that additional drilling was needed to provide more data on the reserve base; these conclusions were accepted by both the Bank and the mining company that owned the gold reserves. (623-4)
12. Operating and Financial Review - Major Investment Banking Firm
Conducted a due diligence assignment for several major banks on two significant gold properties In Chile. The objectives of our review of each of the two properties were to provide the banks with assurance that:
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Production, in terms of ounces per year should meet projections; |
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Cash costs should similarly meet projections; |
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Each operation has the appropriate management capability; |
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The capital projections were well thought out and had appropriate documentation. (623-?8) |
13. Operating and Gold Reserve Analysis - Major Investment Bank
Due diligence study for an insurance company (the investor's representative) of a Canadian gold mining company in the province of Québec. The assignment involved proving to the client that its Canadian Gold Mining partners' conclusion that there was no gold reserves (past 18 months) left in the mine was correct within the parameters of the study and the money available for it.
A&S charter was to provide the following:
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An independent view as to the reserve position of the mine; |
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Our views as to exploration potential within a radius of two miles around the head frame; |
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Our views regarding future ore reserve potential in the exploration area, some 20 miles distant from the mine; |
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Our views as to the value, if any, that exists in the mill, said to have a mill capacity of 1,300 tons per day, either as a going operation taking in ore from other adjacent gold mining operations, as a viable asset to be sold to others as is, or as a dismantled facility selling its equipment in the secondary equipment market. |
The work was done by a three-man team comprised of a senior earth scientist, a senior metallurgical engineer and a business analyst. (703-1)
14. Zinc Resource Assessment - Australian Minerals Company
This very brief assignment for an Australian minerals company involved a due diligence review of two mining companies zinc resources in Tennessee. The work included meetings at the client's U.S. offices. A team of two geologists experienced in Tennessee zinc ore deposits and stratabound lead/zinc deposits in carbonate rocks was mobilized in anticipation of a due diligence assignment. However, following an initial geological review the two companies concerned agreed that a deal would not be made so that A&S' work involving review of the ore reserves and resources of both mining companies ceased. (733-1)
15. Technical and Operational Due Diligence - Investment Bank & Major Diversified Mining Company
A due diligence consulting project to assess the technical, operating, commercial and precious metals exploration capabilities of one of the world's largest and most challenging metal mining operations. A&S was retained by a global U.S.?based investment bank and the Board of Directors of a large diversified global resource firm ("the Firm") to provide due diligence work that, at the very least, met the International Stock Exchange's (ISE) specific requirements. It was agreed that our technical advisers report known as the technical report, would meet the requirements in Nos. 5F and 5G of Section 10, Chapter 2 of the London Stock Exchange requirements governing the admissions of securities of mining companies listed on the London Stock Exchange.
Our work entailed a comprehensive review of all activities and operations located in Asia, one of the world's largest metal mining operations.
In the preparation of the technical report A&S agreed to:
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Audit and review the reserve estimates made by the operator including methodology and present and planned estimates of the life of the reserve; |
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Determine the potential for future minerals development and production of copper and gold in the balance of the Firm's work area in which reserves had not yet been proven or, if proven, have not yet been dedicated to planned development. |
In addition to the above, both the operator and the bank requested that we review a number of aspects of the mining company's business to include: Certain key activities such as (a) mine planning, concentrator operations and equipment used in mine concentrator and peripheral operations; (b) operating costs; and (c) management and control techniques and technical approach to mining and milling used;
| Infrastructure in relation to its suitability to carry out its principal operating tasks; | |
| Equipment, both operating and infrastructure related, in terms of its adequacy to carry out its assigned tasks; | |
| Capability and training of the work force in relation to generally accepted practice for mining projects in remote areas; | |
| The Firm's environmental protection programs in relation to generally accepted practice; | |
| Cost reduction programs; | |
| Operations efficiency; | |
| Treatment charges. |
The methodology we followed included the following:
(1) Making Observations
Here we made on-scene, on-site observations as to the Firm's mining approach, such as method, execution, management and supervisory techniques, exploration techniques, general milling operations, mine and mill equipment utilization, mine and mill maintenance techniques, ore sampling techniques, logistics, methods, processes and systems generally, living conditions, etc.
(2) Review of Reports, Analyses, etc.
Here we reviewed, on a sampled basis, certain of the Firm's reports covering its operations, including, to the extent made available by the Firm, data and analyses covering equipment utilization, geological evaluation, mine and mill planning and scheduling, preventive maintenance, financial reports, geological and exploration reports, planning documents, etc.
(3) Conducted Interviews with Members of the Firm's Management, Both Expatriate and Indigenous
Here we interviewed, to the extent made available by the Firm, key members of the Firm's management team, both in its headquarters as well as at the mine, mill and port sites.
Our final output was two reports, one dealing with reserves and the other dealing with all other matters. (472-3)
