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By Peter J. Maxworthy

INTRODUCTION There is no hard and fast rule on whether functions within a company, diversified or otherwise, should be strongly centralized or decentralized. In all diverse organizations, there are certain basic functions which remain common (or central) to each element of the business, viz: Personnel Management Cash Management Taxation Management Legal Planning Accounting Standards It would follow that each of these common factors requires some supervision at a central level to ensure that overall group objectives are met. It is true that other functions including: Industrial Relations Marketing and Distribution Production Research and Development Purchasing Management Accounting may also be common to each element of the organization. However, there is far less commonality in the degree to which these functions are central to the efficient performance and financial well-being of the business. Role of Operating Units The resources of operating centers may be viewed as a bank of funds, the nature of which can be changed from time to time, but the employment of which must provide for ongoing increases in the net worth of the total enterprise expressed in terms of market values. Operating units are required to continually review products, methods, and opportunities and to monitor avenues for incremental investment--all with a view to attaining the necessary additive net present value of future cash flows of the enterprise. Operating units should be permitted sufficient autonomy to enable the best use to be made of the skills and experience of the people it employs in order to produce a return appropriate to the value of assets employed. Role of Head Office The head office will typically comprise a specialist group--the leaner the better if one strongly adopts the decentralist approach--often acting as Service Centers but also performing a control function in the corporate sense. The head office function is a cost center. It may be instrumental in developing strategies for increasing revenues or reducing costs on a group scale, but it does not generate revenue. Every dollar spent on this function is an extra dollar to be generated by the operating centers in order to achieve an increase in corporate wealth. TREASURY MANAGEMENT Treasury management is concerned with the provision of finance, cash-flow management, and risk analysis. Each decision taken within the enterprise has a cash implication. It follows that a well-integrated central Treasury function can, in all likelihood, produce economic benefits. The degree to which the function should be centralized depends largely upon the unique nature of the operating units it is servicing. Levels of ownership, the calibre of unit operating managers, and the nature and geographic distribution of the business are all factors determining the degree to which the Treasury function is centralized. In the case of Peko-Wallsend, the Treasury Department is small, comprising four people. While divisional cash-flow management is largely decentralized, Treasury is responsible for the daily management of funds surplus to the immediate needs of operating units. Treasury also operates as central banker and provides funds to

Jan 1, 1985

By S G. Gemell

"The financial model is an integral component of any project evaluation based on mineral resources, ore reserves and (at least internally) exploration targets. Given the unity of purpose for preparing financial models for project evaluation purposes, the diversity of both format and content of the finalised models is surprising. Many models are prepared by staff or consultants who are comfortable with a particular format that may be used for other purposes, such as budget preparation or financial reporting. It is natural in these situations that the practitioner will take these models and adapt them to the purpose. The end result may or may not succeed in providing a clear, accurate and sufficiently detailed view of the project’s economic viability.When preparing a model, the practitioner should be cognisant of the interpretation and review, or audit, process. The auditor may be a consultant or employee of a bank, potential equity provider or of the project sponsor itself. Depending upon the scale of the project and the level of participation of the entity that the auditor represents, the financial model will be interrogated more or less rigorously. In any event, the end user will require the model to permit easy change of inputs and will wish to confirm that such change is appropriately and thoroughly transmitted throughout.Accordingly, there are some ‘dos and don’ts’ that can be readily applied in the creation of the financial model that will greatly assist the end user, not just in the change of inputs, but also in reviewing the model’s integrity. The less time and effort required by an auditor in this regard is reflected directly in the cost of the review process.CITATION:Gemell, S G, 2016. Financial modelling with the auditor in mind, in Proceedings Project Evaluation 2016, pp 172–180 (The Australasian Institute of Mining and Metallurgy: Melbourne)."

Mar 8, 2016

By E. Kendall Cork

The traditional financial objective for a single mine company has been to operate as frugally as possible and to pay out most of the earnings as dividends. If the business is cyclical (as it is for most metals) the dividends might fluctuate quite widely. When the mine is exhausted the company disappears. This is still quite a viable strategy for a single mine company. It is not however a viable strategy for the world as a whole. The mining industry is built by mine development companies who can mobilize the people and capital to bring new mines into production. Their skills must include marketing, engineering, finance and other politics. It is very rare for a property to be brought in without the support of a major company that can provide all these services. The exceptions will usually have some other form of big brother support, for example the U.S. government uranium contracts at guaranteed generous prices. The mine development company will seek as a minimum to perpetuate itself by developing new mines in order to replace those which are running out. The more common and more ambitious objective is to grow -- that is to add to its ore reserves and current production by developing more new mines. The financial objectives for that company are very different. Obviously if all the earnings were paid out in dividends there would be nothing left to work with. The first financial policy then is to spend an appropriate amount on exploration for new properties. The next is to retain enough of the earnings to provide the capital for new projects at least sufficient for the equity. There is no magic formula as to what proportion of earnings should properly be distributed as dividends by a growth-oriented mine development company. As a rough rule of thumb distributing half or more will probably leave too little to work on and 30% or so is probably a good balance. However the circumstances differ widely from company to company. It may be useful to set an objective for the rate of growth of a company's earnings. Some have picked rates such as 15% per annum compounded. Others have set a target in real terms which might appear as 10 or 11% plus inflation. Obviously the arithmetic of compound interest is very attractive; however in practice there is much variation. Indeed current returns from existing operations swing widely with the business cycle and there is no assurance that economic new properties will be found according to someone's arbitrary time schedule. For example, Western Mining Corporation Limited in Australia explored for 30 years with little to show for it, but then found the great Australian nickel deposits and more recently the huge Roxby Downs copper. That long dry spell could not have fitted anyone's arbitrary calendar of growth and yet they would not have found such orebodies without that long period of effort. Should they have abandoned the search? Once a new property has been found or acquired there has to be a threshold rate of return on the new capital to be invested against which to evaluate the property's economics. Conventionally this seems to be 15% after tax, a number common in other heavy industries as well. In some cases it is expressed as a lower number plus allowance for inflation. Discounted cash flow analysis is a very useful tool but it does not make the decision. In the end a "go" decision depends on judgment of many factors some of which are numbers used in the DCF calculation whose credibility must be examined. It is curious how frequently investment proposals come in with the rates of return very close to 15%. The project advocates know that a number much less than 15% will not fly and that a number much more is not necessary. With much higher nominal and real interest rates of recent years, even though before tax, logic suggests that the hurdle rate should also rise. The power of compound interest is so great that 20% is very hard to achieve in any cash flow projection but 18% may be a sensible yard - stick. Once again it is remarkable how many project proposals come in with an 18% return. On the record the mining industry as a whole has not been overly restrictive in choosing its hurdle rates of return. This is shown by the abundance of metals in recent years and the failure of metal prices to keep up with inflation. All of the foregoing is standard text book stuff.

Jan 1, 1985

By Jr. Winters

The United States continues to be the largest producer and consumer of copper in the world. Table 1 on the following page shows several production statistics for 1974, the most recent year which the non-communist world copper industry might consider a good year, and for 1976 and 1977. In 1974 an estimated 24 percent of the non-communist world's newly mined copper was mined in the United States, and. 87 to 89 percent of that was from the western porphyry coppers. In 1976 U. S. new mine production was down to 22 percent of the non-communist world's newly mined copper, and the percentage of U. S. new mine production supplied by the porphyry coppers had risen to 89 to 91 percent. In 1977 the statistics remained the same as in 1976. U. S. porphyry copper production represented about 65 percent of U. S. refined copper consumption in 1974, rose to 75 percent in 1976, and dropped back to 61 percent in 1977 as imports of foreign copper into the United States began to swell.

Jan 1, 1978

By David M. Koogler

If you are contemplating starting a small coal mining operation there is a good possi¬bility that you can not afford it. If you, have already started, you may be on the road to bankruptcy. If you are a small but well established operator you may be trading dollars, or even dissipating your capital, equipment and other assets. A bleak outlook? Yes! Meant to be discouraging? No! Just a reminder that, with todays costs of doing business, high interest rates, rapidly increasing costs and decreasing sales prices, a small businessman/miner had best watch closely or he will be mired in something worse than a soft bottom - namely a cash and credit shortage, and in too many instances In recent times, bankruptcy. We will not dwell on what happens once you are that far gone, though I could cite a good example. But, let us look at what should be done to avoid such a catastrophe.

Jan 1, 1981

The visible portion of accounting-record keeping and preparation of financial statements-suggests a lack of sophistication and imagination. In reality, accounting is based on a large body of theory. Accountants philosophize, theorize, judge, create, and deliberate as a significant part of their professional practice. The subjective aspects that are so critical to current accounting practice, such as searching for truth and fact, judging what is fair presentation, and considering the behavior induced by presentations, are often overshadowed by the appearance of exactitude, precision, and objectivity that accompanies the use of numbers to express the financial results of the enterprise. * Fundamental accounting principles are hypothesized in the same manner as mathematical principles. These principles are justified by acceptability and intuition. Accounting theory is built upon these hypotheses, resulting in a coherent set of standards and rules. Although it does not specifically address every situation that may be encountered, this conceptual frame- work enables the manager or analyst to resolve specific situations. This framework also aids in the understanding and confidence in financial statements and ensures comparability between statements from different companies. This framework is referred to as "generally accepted accounting principles," or GAAP.

Jan 1, 1999

By M. Somppi, D. Weirmeir, Z. Yamak

"Milling operations commonly employ activated carbon to capture complexed gold from lixiviants in leaching processes. As the carbon moves through pipes, pumps, vessels, kilns and other processes in the gold leaching circuit, this consumable may experience losses by various mechanisms like attrition, breakage, and rupturing. Whenever possible, capturing the fine gold-bearing carbon portion of this stream could provide value to milling operations at low capital cost and manageable financial risk. Identifying, testing, and validating the successful payback of a low-tech flocculant system is described. However, the work more closely explores a Monte Carlo risk-based methodology for understanding the potential payback of this project at various confidence levels – an approach that many improvement projects can follow where some level of uncertainty exists.INTRODUCTION Gold milling operations commonly employ activated carbon to adsorb gold from solutions. Normal handling causes the carbon particles from this material to abrade, break, rupture to a size that becomes too small for further use in the process. Operations often concentrate on capturing the fine particles because gold is associated with the carbon and this metal content can be a valuable revenue stream for toll processing. However, the small particle sizes become difficult to separate from the process and can ultimately leave the facility in the waste stream. Hence, operations often place a great deal of care in capturing as much fine carbon as possible by a variety of methods including using screens, settling tanks, and chemical methods. Retrofitting a circuit to capture more carbon fines is common but can expose the operation to financial risk. Approaching this potential improvement by leveraging a Monte Carlo methodology can be effective in understanding the risk and the associated payback of a project at various confidence levels. This method provides a strong framework for capital go-no-go decisions and the structure to validate the potential project success before implementation."

Jan 1, 2019

By James H. Boettcher

In the second quarter of 1979, ASL Inc. inquired whether Crocker National Bank ("CNB") would provide $4 million in term loan financing to help ASL acquire the outstanding shares of the S&S Coal Company in West Virginia. ASL had, prior to approaching CNB, sought financing with the assistance of a financial advisor from a number of commercial banks without success. A summary of the initial terms requested by ASL is shown in Table I compared with the actual terms the transaction closed with. It is not difficult to note that the two sets of terms differ significantly. This is often the case when financing requests based on the expectations and vision of a mine developer are juxtaposed with more pragmatic requirements of a commercial bank. The "art" and fun of structuring financing plans for mining ventures (highly leveraged acquisitions or grass roots) comes in working with mine developers to arrive at a final financial structure that meets their objectives and constraints as well as those of the bank or other financial institution providing much of the financing. This article briefly describes the process we went through with ASL beginning with the terms they requested initially and ending with the ones on which the transaction was finally closed.

Jan 1, 1981

By Robert Halupka

The industrial minerals sector represents a broad range of products involving a variety of technologies serving a diversity of markets and end uses. Unit values of products vary widely, reflecting the peculiarities of each product/market sector. Generalizations are therefore understandably difficult to make and borrowers may need to take extra time to "educate" lenders on the key aspects of their business and industry sub-sector. This paper will examine the factors and the thinking that lenders apply when considering financing proposals to companies in the industrial minerals sector. If you understand the lender's perspective and their concerns, then you can make better use of your own time and resources when arranging financing for your company or project.

Jan 1, 2001

"Investment in diamond exploration has been declining over the past decade, in spite of positive long-term industry fundamentals and a growing interest in diamonds as an investment category. The lack of new significant discoveries in recent years has eroded investor confidence, yet no new discoveries are possible without investment in exploration. Junior ‘mine finders’ have been the hardest hit. Their agility, tenacity, and appetite for risk are not sufficient to attract the funding required, even at the greenfield stage. Developing new discoveries into mineral resources can be crippling without solid financial support. Junior incubators could play a crucial role, especially at the project evaluation stage – but where are they? Alternatives to traditional funding mechanisms have become available, many still untested in the junior diamond exploration space. Valuable lessons can be drawn from the past and used to inform emerging new strategies. IntroductionDiamonds are the ultimate expression of love. Their ancient and timeless allure continues to influence consumer emotions and behaviours across continents, cultures and age groups. Analysts are predicting a sustained supplydemand shortfall in the years ahead which will trend diamond prices generally upwards. With positive long-term industry fundamentals, one cannot help but wonder why funding for diamond exploration and development projects is so scarce.Investment in exploration across commodities – including diamonds – has been declining for a number of years, reaching a historic eleven-year low early in 2017. The lack of major diamond discoveries in recent years has done little to strengthen the case for investing in diamond projects, yet no new discoveries can be made without investment in exploration.Global estimates of known carats in the ground stand currently at 2.5 billion carats, which equates to around 18 years of production at current levels of 140 million carats (mct) per annum. Sustainable replenishment of depleting diamond resources is possible only through the development of new discoveries. This is what junior explorers are best at – but they need investors to fund their evaluation activities from early in the project development continuum."

Feb 1, 2019

By Eric Low

Raising capital by issuing debt or equity is necessary in almost every corporation. In the field of corporate finance, the raising of capital is a heavily-studied topic. However, some of what is studied on this topic in corporate finance is not applicable in the mining industry. There are also many financing options that were created for the mining industry such as flow-through shares, prepaid forwards, and royalty sales. The cyclical nature of the industry makes the risk-return profile of financings more difficult to estimate than in other industries. Additionally, the methods used to assess firm value are different than other industries, as the values of orebodies are not included on balance sheets. For precious metals companies, which are a hedge against most other securities, there are additional complications with determining investor expectations and cost of equity. This thesis puts forth a decision-making framework to explain mine financing choices from the perspective of mining companies. The approach is threefold. First, all of the major equity and debt financing instruments available to mining companies are presented and analyzed. Each financing method is assessed on a wide range of criteria. Next, these concepts are applied in case studies of four companies: BHP Billiton, Barrick Gold, Teck Resources, and Noront Resources. For each company, the overall choice of financing methods is shown and analyzed. The effect of financing choices on the weighted average cost of capital (WACC) is calculated. The final section deals with case studies of individual mine finance decisions during the past two years.

May 1, 2011

By James Mackie

The Vancouver Stock Exchange (VSE) has been providing venture capital for start-up companies since 1907. Ninety years' experience in the junior mining industry has enabled the VSE to develop policies and procedures tailored to the unique needs of start-up companies. Policies and procedures applicable to listed companies are documented in the Corporate Finance Services Department "Policy and Procedures Manual." Approximately 50% of the companies listed on the VSE are in the mineral exploration and development business. The largest number are exploring base metal, precious metal or diamond properties. A recent count shows that about 20 companies are exploring industrial mineral or non-metallic deposits. The minerals sought by these companies include limestone, decorative stone, building stone, lava rock, wollastonite, zeolite, garnet and graphite. There are two basic routes to obtaining VSE financing for an industrial mineral property. The owner can either sell an interest in the property to a listed company or form a company and have it listed on the VSE. In each instance, the listed company is responsible for raising funds to develop the property. A typical financing consists of the sale of company securities byway ofeitherprivate placement or prospectus offering.

Jan 1, 2001

By Wallace W. Wilson

It scarcely 1s possible to read a new issue of any of the principal mining trade journals without noting some mention of a major new overseas mining venture with which one or more domestic companies are involved. These projects seem to follow a fairly consistant pattern; most are large open pit mines, with relatively low grade ore bodies but huge reserves; the total price tag will be in nine significant figures and around half or more of the total cost will be for infrastructure. West1 noted that nearly $7 billion is being invested annually for new mining projects and the expansion of existing mining ventures, in the free world. He anticipates that by the year 1975 such investments would reach the $10-11 billion annual figure, and that in the five year period 1972-76 total capital requirements can be expected to aggregate around $45 billion. The proportion of this total investment which will be financed in some manner is difficult to estimate because of the variety of available financing arrangements. West estimated that around 75% of the total capital would come from internally generated funds, with the balance from external sources. Conceivably a substantially higher percentage could be attributable to external financing, especially it the trend of recent mineral development in Canada and Australia is any criterion, and of course, including local sales of equity as a part of the package.

Jan 1, 1973

By A. W. White

Introduction To discuss all the technical details of incorporation laws, security laws, underwriting procedures, codes, and ethics-as laid down by varous associations -would be impossible in the time which has been allotted to me. My remarks, therefore, will be made in a very general way and will naturally be coloured with experiences which my firm and I have had. There is a common expression that "money makes the mare go". I hardly have to mention here that the best prospect in the country is of very little value unless its prospects can be developed-and this requires large capital expenditures. The art and problems surrounding the raising of this money is a long and interesting story. Since by its very nature mining is risky, the appraising of its risks in the many phases of its development programme is continuous. Very few men-if any-and very few corporations -if any -can afford to take all the risk of mining. Because of taxation policies-and the very scheme of present-day living -the truth of this statement can be seen throughout the whole industry by a close examination of the records. Since this is so, it is essential that the mechanics of distributing risk on a sound, and equitable basis be known to those engaged in the business and to the investor or spectator who proposes to risk his funds in the industry. Perhaps the greatest stimulant to modern business activities has been the creation of corporate bodies. It is evident, from the number of charters being granted by various jurisdictions, that this method of doing business is becoming more and more important. A limited company -or corporation-can be defined as a fictitious person existing solely in contemplation of the law.

Jan 1, 1951

By P. Klaus

"KfW IPEX-Bank is the commercial arm of KfW Bankengruppe, responsible for international project and export finance.KfW was one of the first banks in Germany to promulgate environmental guidelines for its commercial business activities. These guidelines were first made public in 2000 and updated for the second time in 2004. They now include specific reference not only to environmental but also to social concerns. The guidelines specify the procedures to be followed in assessing credit risks related to environmental or social hazards.The bank considers sustainability as an interdependent framework of economic, ecological and social factors. In its efforts to contribute to sustainable development worldwide the bank uses its influence as far as possible to improve a project’s performance if such improvement is deemed necessary."

Jan 1, 2005

By George H. Deike

UNDERGRADUATE interest in coal mining engineering has dropped to an alarmingly low level. Most companies having co-operative scholarship programs have been forced to abandon them for the duration.

Jan 1, 1944

By M. Götze, P. Eysel

Over the last years, the importance of the assessment of environmental and social aspects as well as of issues of good governance has increased significantly in mining finance. For this, international standards as well as internal guidelines of the banks and other involved institutions have been established and continuously improved. Considering these standards and regulations, the banks can influence the sustainability of mining projects - and they have done so in the past -, mainly by implementing certain provisions and covenants in the loan documentation, binding the financing to the mining company’s adherence to the agreed sustainability standards. However, there are limits to the banks’ influence due to the competitive environment with other available means of financing. Nevertheless, the experience of the last years has shown that the standards and regulations bound to the financing by the banks help to lead the mining industry towards more sustainable projects.

Jan 1, 2011

By Tomek Ulatowski

This article discusses four principal areas relevant to financing direct reduction facilities: (1) Lenders' differing requirements with respect to projected cash flows; (2) The impact of leveraging on project viability; (3) The importance of appropriate debt structure; (4) The significance of accurate and complete capital cost estimates. The overall findings emphasize the inseparable connection between the project economics and its financeability, and particularly how direcly intertwined they both are in the project planning.

Jan 1, 1978

By Georges Caraghiaur

INTRODUCTION A small, independent mining enterprise (SIME) is an independently owned and operated business concern engaged primarily in mineral development, from the exploration to the production stage. By definition, a SIME is not dominant in its field and has no long-term financial backing. It is not a major producer of minerals, nor is it a petroleum company, a government organization or a subsidiary of such organizations. A SIME may or may not be listed on stock exchanges. The SIME is also called small miner, junior mining company, speculative mining company, and penny-stock mining company. The survival and growth of a SIME is most often controlled by an independently minded entrepreneur, who not only conceives and carries out new projects, but is materially affected by the success or failure of these projects. Usually, a SIME does not have a large or constant cash flow. Such a lack of long-term financial backing forces the SIME to meet the challenge of finding capital for its activities on a step-by-step basis. Its survival strategy is thus based on finding funds at the right time, of the right type and in the right quantities. The purpose of this paper is to show that the type of venture in which a SIME is involved affects the difficulty of raising new capital and the choice of possible sources of funds. The Small, Independent Mining Enterprise (SIME) The SIME is not a figment of the imagination of financial speculators. In Canada, there are more than 1,800 small mineral enterprises which spend on the average less than $1,000,000 per year on activity which is directed at bringing forth new mineral supply. In the United States, 64% of the non-fuel mining operations are conducted by nine or fewer men, and the coal industry is characterized by several thousand smaller independent producers, still predominantly family owned or controlled. In Chile, 80% of the mines can be classified as small mines. In the Philippines, approximately 60% of metal mining operations are classified as small mines. The SIME is actively engaged in mining all over the world, and very much so in the Pacific Rim. The Mineral Supply Process The whole process of bringing forth new mineral supply involves a dynamic sequence of activities, ranging from the initial exploration for a mineral occurrence to the production of a marketable product. A typical sequence is outlined in Figure 1. At the grass-roots exploration stage, a series of geological, geophysical and geochemical tests is aimed at locating a mineral occurrence. Especially in the early phases of such activities, the uncertainty (risk) surrounding a venture is high, since only general geological information exists on which to base a judgement of the economic viability of the venture. Such risk is attractive to few investors. As the information-gathering process continues, uncertainty diminishes. Once exploration efforts result in the discovery of a mineral occurrence, i.e. when indications of mineralization and mineable widths are obtained by drilling, there is still uncertainty concerning the extent of mineralization and the probability of having located an economic mineral deposit. The expected return on investment at such a stage may well be negative but the slight possibility of a very high positive return will make a number of financial sources available to an exploration company. At the development stage, much of the uncertainty

Jan 1, 1985

By G. V. Campbell, O. T. Holdsworth, M. G. Nelson

A senior design project is required by all accredited mining engineering degree programs. Often referred to as the capstone of a student’s education, this project is expected to include all the important components of the preliminary economic assessment of a mineral prospect, including orebody modeling, grade and reserve estimation, selection of mining and processing methods, preliminary mine design, access and utilities, environmental compliance and reclamation, and financial analysis. Two of the authors (Campbell and Holdsworth) completed a senior project in 2021. They analyzed the Akie zinc deposit located in Canada. This paper summarizes the economic analysis portion of that project. The two primary objectives of this economic analysis were risk reduction and integration of economics and engineering. Addressing risk is important as risk is one of the primary concerns in mining investments. Risk reduction was the primary concern through the entirety of this economic analysis. Integration of financial analysis and engineering design was the first component of a risk reduction design. This allowed for financial and engineering design to be optimized in conjunction with one another. This produced benefits from both a financial and an engineering prospective. From a market, economic, and financial risk perspective, risk was reduced by forecasting multiple metal price scenarios, and then addressing the Akie project’s economic viability at each price point. Lastly, risk was address through consideration of nontraditional financing options. The project also sought to minimize financial and human capital risk, by proposing mutually beneficial cooperative social relationships and favorable work, schedules. Description of that work is not included in this paper.

Mar 2, 2022