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Due diligence in a climate of global meltdown

The Global Financial Crisis has seen metal prices dip to historic lows, prompting asset sales by majors looking to get their balance sheets in better shape and reduce debt. These asset sales will present buying opportunities but ‘how good a buy’ are these assets and how long will it be before they provide adequate financial returns?

There are good opportunities for the astute company and risks for the companies that do not conduct independent technical Due Diligence as a part of the accountability process. This Due Diligence is a mandatory requirement for companies seeking to acquire assets and underlines the robustness of the project as a going concern and the viability of any expansion plans.

The fundamental and critical asset must be the mineral reserve and independently verified by a competent person to acceptable international standards and provide the underlying security.

The Scope of Work should include, mining methods and production, geology resources & reserves, metallurgical methods and production, health and safety, operating cost, environmental, revenues and cash flows, infrastructure, capital cost, market value of the asset, sales agreements to smelters and the Net Present Value


Documentation can be in a data room, on and FTP site or similar. Site visits by the multidisciplinary team is mandatory to all key sites. The project history may be important and reflect an opportunity; other aspects including location, access and climate, status of the leases, marketing and sovereign risk should also be taken into account.

No Due Diligence is complete without a full assessment of the threats, opportunities and risks for the project. At the same time possible development scenarios should be considered i.e. ‘what it might be’, ‘what it could be’, ‘what it will be’.

The review should include the management and staffing, key experience, competencies, new technology etc. Stock exchange requirements must be taken into account to protect investors and meet regulatory requirements. The Valmin Code provides a set of fundamental principles and supporting recommendations regarding good professional practice.

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