Diving into resource estimates, PEAs, PFSs and other economic studies
Brian Leni, Founder of Junior Stock Review joins me to share his thoughts on the main aspects of resource estimates and economic studies that companies release. Anytime a resource or economic study is announced there is a lot of information behind the headline numbers. Brian shares with us what he finds most valuable and some of the numbers he watches closely when doing his DD.
Good interview today Cory & Brian. It is interesting to dissect the wacky world of economic studies that the mining industry dishes out.
PEAs are just a crapshoot in the dark, and give a glimpse of if a project could be an economic mine, and they’re necessary to gauge whether or not to kill the project, or keep going. Of course most massage the numbers so they can forge ahead with a lifestyle company, but reality is that the numbers are often pie-in-the-sky assumptions.
PFS and FS studies are better (but they still lowball a number of jurisdiction risks, inevitable milling or processing ramp-up issues, the actual smelter penalties, realistic starting metallurgy recovery rates, realistic fuel costs to ship ore, and environmental concerns from local communities that may require much more than the minimum bar required in construction for a tailings dam, environmental studies, water treatment concerns, and on… and on….
As for the capital needed – I agree with Cory that it is never enough in the initial economic studies and those numbers are disingenuous on many levels. Most companies really lowball the capital needed to be raised to make their ROI look better, but then end up needing to raise far more than initially projected. They’ll end up doing a 2nd or 3rd capital raise during development due to (XXX or YYY challenge coming up, or dingbat consultants suddenly recommend adding updated equipment to improve throughput or recovery…). Many of them know they are short-changing what they’ll actually need, but often when they are 85% there, other key investors will come in and raise the final bit needed, but this further dilutes investors that jumped in off the assumptions of the filed PFS or FS.
All of these things that crop up and surprises companies, add to the capital needed to be raised, and really they shouldn’t be a surprise to experienced teams. What is sad is the industry just repeats this song & dance over and over again, and reacts like these stumbling blocks and extra capital needed to be raised couldn’t have been foreseen – total BS! (just look at what happened to the last several hundred companies that decided to go from explorers, to developer, to producer and it is a clear trend of diluting and raising money, rinse and repeat.
As for the NPV – yes 5% is mostly a comical assumption, unless the mine is going to be in Nevada or a few key provinces in Canada. Most of the world’s jurisdictions need to have 7-10% NPV discount factored in, and some need a 15%.
(EXN) (EXLLF) Excellon Appoints Anna Ladd-Kruger as Chief Financial Officer and VP Corporate Development
by @newswire on 17 Jun 2019
“Ms. Ladd-Kruger was most recently the Chief Financial Officer of Trevali Mining Corporation, a zinc-focused, base metals mining company with four commercially producing operations in Africa, Canada and Peru. Anna was recruited as part of the executive management team to grow the company from junior exploration to a mid-tier base metals producer that reached over $1 billion market capitalization on the TSX. She has raised over $1 billion dollars in debt and equity throughout her career in the mining sector. Anna has also served as the Chief Financial Officer on a number of Canadian publicly listed junior mining companies and began her career as a Senior Financial Analyst for Vale S.A.’s Thompson and Sudbury Canadian operations before joining Cache Coal Corporation as Mine Controller and then Kinross Gold Corporation as their North American Group Controller. Ms. Ladd-Kruger currently sits on the board of Integra Resources Corp.”
(EXN) (EXLLF)Excellon Resources – Mexico’s highest grade Silver Producer
Investor Corporate Presentation – June 2019
(TV) (TREVF) Corporate Presentation – June 2019
Zinc/Lead Producer – 4 mines – Santander mine in Peru, the Caribou mine in the Bathurst Mining Camp of northern New Brunswick, its 90% owned Rosh Pinah mine in Namibia and its 90% owned Perkoa mine in Burkina Faso
While most Silver/Zinc/Lead Producers have been struggling, there is still one standout company in the sector that continues to deliver:
(SVM) Silvercorp Reports Net Income of $39.7 Million, $0.23 per Share, and Cash Flow from Operations of $67.8 Million, for Fiscal 2019
Look what happen to MMSDF Macathur mineral today. I would like for Cory to get them for a sponsor.
Macarthur Minerals Limited is an iron ore development company with its focus on bringing into production, its sizeable, 100% owned, Moonshine Magnetite and Ularring Hematite Iron Ore Projects in Western Australia. Macarthur Minerals also has prominent (~1,130 square kilometre tenement area) exploration interests in gold, lithium, nickel, cobalt in the Pilbara region of Western Australia. In addition, Macarthur Minerals has lithium brine Claims in the emerging Railroad Valley region in Nevada, USA.