Mine Financing

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Mine Financing

Postby mxsquid » 29 Nov 2008, 17:47

Getting a bank to give a mine money or:

A layman's guide to understanding NI43-101 and the differences between indicated, inferred, proven, probable mineable reserves as opposed to geological reserves.

Excerpt:

At the point a company decides to begin mine development and wishes to convince lending institutions that the proposed operation will return their borrowed funds, plus interest, over the terms of the loan, communications between lender and borrower are crucial. The importance of the mine feasibility presentation should not be underplayed, especially as new projects continue to increase in size, complexity, and cost. While the content and emphasis of a report to the lender will vary according to the particular project and type of debt financing sought, there is a general base of information upon which all such studies are built. THE PROJECT'S TECHNICAL ASPECTS Here, the object is to satisfy the lender that he will not be unduly exposed to technical risks as a result of the physical scope of the project. Reserves The feasibility report submitted to financial institutions should include an adequate description of the geologic setting, mineralogy, ore types, and reserves broken down into such recognized categories as proven/probable/possible or measured/indicated/inferred. Rather than a bald statement of reserves, lenders prefer to have detailed information on: History of exploration Drilling, both percussion and core, with core recovery, drill hole spacing, analyses, and continuity of mineralization Bulk sampling, with core assay comparisons Overburden, with stripping ratios Specific methodology of reserve calculation, and Geologic reserves vs. mineable reserves. As a rule of thumb, a lender would prefer to see that reserves in the proven class alone are sufficient to support operations at the design rates until the borrowed funds are repaid. (See also Schreiber above in this Chapter.) Mining The rationale for adoption of a particular mining technique should be presented as well as descriptions and justifications for: Preproduction development Preliminary mine plan, with forecasts of grades and material movements Geotechnical test work which influenced decisions Mining recoveries and efficiencies Major equipment, with type, model, rating life, spares, replacement schedules, utilization, and productivity Manpower requirements and work schedules Design assumptions Ore stockpiling and blending Environmental requirements, and Waste disposal Processing If a new ore body is to be developed or a new process used, it is important to provide details of test work, scale up, and extrapolation factors. A basic process description with a summary of the studies which justify the intended processing route should be included...

http://www.onemine.org/search/index.cfm ... -indicated

Canadian Institute of Mining

http://www.cim.org

Standards Defined

http://www.cim.org/committees/CIMDefStds_Dec11_05.pdf

From the published CIM definition of "Indicated Mineral Resource" on the above PDF

An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.

Mineralization may be classified as an Indicated Mineral Resource by the Qualified Person when the nature, quality, quantity and distribution of data are such as to allow confident interpretation of the geological framework and to reasonably assume the continuity of mineralization. The Qualified Person must recognize the importance of the Indicated Mineral Resource category to the advancement of the feasibility of the project. An Indicated Mineral Resource estimate is of sufficient quality to support a Preliminary Feasibility Study which can serve as the basis for major development decisions.
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Re: Mine Financing

Postby mxsquid » 29 Nov 2008, 18:04

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Re: Mine Financing

Postby mxsquid » 01 Dec 2008, 15:10

schmengei on the mexicomike.ca board posted this excellent piece on mine financing terminology:

Measured: The thickness, grade (in grams of gold per ton of host rock), distribution and extent of the deposit is "fully" known, or at least with great statistical confidence. Where the ore starts and stops in every direction should be "known." Many, many drill holes and assays are completed and analyzed. Relative concentrations of gold ore to host rock and overburden are "known."

Indicated: Only a "few" drill core samples and assays of those cores may be completed and sufficient to calculate tonnage and grade. Inferred projection of the "goodies in the ground" at a measurable distance away from the drill holes is permissible with limitations. It is very expensive to drill every few feet, so you have to make reasonable assumptions about what is hidden between the drill holes; it may be a bonanza, it may be nothing.

Inferred: Usually only crude, high level ground survey or statistical "sampling" of the area has been performed. Not enough actual testing has been performed. "Gee, it kind of looks like that outcropping way over there has some gold in it too; it looks like it starts here and continues all the way."

The term "Reserve" is used only for mines that are actually producing or very near that point. Much more is known about the richness, depth and expanse of the ore body. Drilling is complete and assays have been verified. Reserves are classified as proven, probable or possible.

Proven: The actual entire ore reserves are stated explicitly in terms of the mineable tons. The chemical and metallurgical properties of the mineralization are very well known and documented. The mining method is clearly identified and optimized. The estimate of the "mine life" before resources are exhausted is extrapolated. All of the supporting infrastructure, ancillary requirements and capital costs are identified and indexed to expected price and "net profit" per ounce. This is the most important category and should always be carefully analyzed when picking a potential stock for inclusion in your portfolio. Almost everything else is a "sales pitch." You've been warned..

Probable: Only the mineable ore grades and tonnage are stated. The vein thickness is known and the way the gold ore lies in the ground is also known fairly well. Where mineralization starts and stops is reasonably estimated. This is often estimated from following industry accepted and permissible "ethical" procedures after drill results.

Possible: This is a big estimate of how much gold might be here; it is sometimes referred to as "potential" How many of us know people that never lived up to their "potential" for one reason or another? Same thing here. It may be no more than some geo-pseudo-scientific guess based on little more than review of earth mapping satellite imagery or surface surveys.

The ore can migrate from one category to another over time as the deposit is better measured and understood after more drilling and extraction is completed. Any given "zone of occurrence" can have only one classification at any given time. Lodes can turn out to be either richer or leaner than initially "guesstimated." It is NEVER an exact science, errors are inevitable. A simple decimal point higher or lower in any mathematical measurement can be the difference between profit and failure.
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Re: Mine Financing

Postby mxsquid » 15 Dec 2008, 16:55

SEVERE SUPPLY SHORTAGE: NOT IF BUT WHEN,

Long term/short term investment conflict builds certainty of metals price surge


It seems inevitable that we are in for a surge in metal prices as current financial strictures will lead to severe supply shortages medium to long term – but the question is when.
Author: Lawrence Williams
Posted: Monday , 15 Dec 2008

LONDON -

The mining industry as a rule looks to the long term but investment nowadays is more and more dependent on rapid short term gains. Day traders and hedge funds for example increasingly look to short term profits and in the case of the latter, the size of some of them, and the necessity to achieve these short term gains, may well mean they will act against the long term interests of a company – and this is particularly apposite to the global mining industry. The result is financial incompatibility, particularly in times of market stress. Short term gains are just not what mining as an industry is about. A decision to construct a new mine today may well not lead to a single ton of metal or mineral being produced for several years yet.

Markets in general are not really behaving logically and mining stocks have been amongst the worst hit. True we are in a downturn and it is probably also fair to say that a major correction from the heady days of only a few months ago was almost certainly likely to happen at some stage. But the speed and the severity of this ‘correction’ has been virtually unprecedented – with mining and metals stocks affected most of all.

There is talk of deflation, but in reality deflation could be considered a recession where negative sentiment gets out of control - and with mining stocks we may have been there already. The problem is partly that the young guns who drive the markets and run the hedge funds and some other key investment institutions have never seen a downturn of anything approaching the current magnitude and are running around like headless chickens, disposing of the good alongside the bad and indifferent.

But most of all it is the unavailability of finance that is the most damaging to the industry, and the principal reason it finds it difficult to break the cyclical nature of metals and minerals prices. At boom times everyone climbs in to invest in mineral commodities and new mining projects. Funds become readily available for new mine development and expansion with the result that this can rapidly lead to an oversupply situation exactly at the time the economic cycle may be beginning to show signs of a downward correction. This is very much what has happened in this cycle, but in this case the correction was more severe than usual and the effect on commodity prices was correspondingly drastic.

Now we are seeing the mirror image of the up cycle, and mines are closing, new projects are being halted and even really good exploration targets and development projects are not being followed up purely through lack of availability of funds.


It doesn’t take a rocket scientist to understand what this is building up to as the world economy picks up, as it undoubtedly will. Once demand returns to the market there will not be the supply available to meet it and prices will inevitably soar again. This will happen. The only uncertainty is the timescale.

Much will depend on the global economy – once this starts to pick up commodity prices will likely lag at first, but then forge ahead and with the amount of metal being taken out of the market by the current spate of closures, coupled with cutbacks by major and mid-sized miners and the lack of ongoing new projects, severe shortages of some metals are certain to arise and prices will move accordingly.



http://www.mineweb.com/mineweb/view/min ... &sn=Detail
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Re: Mine Financing

Postby mxsquid » 15 Feb 2009, 20:47

Miners don't need banks

Author: Barry Sergeant
Friday , 13 Feb 2009

In the past few months, mining companies have raised USD 30bn, directly from keen investors keen to lock in great value.

While US Treasury Secretary Timothy Geithner continues to dither over details of the Financial Stability Plan, leaving markets in general to stumble on sideways, selected mining companies continue to raise fresh capital directly from investors. While bank bail outs have become commonplace in a number of countries, and all kinds of sectors have raised hands in appeals for non-bank bailouts, the mining sector has struggled on silently.

But the struggle tides may have turned, for miners at least. In the past few months, mining companies have raised at least USD 30bn by way of new equity issues (also known as rights or capital issues), bonds, loan notes, and, in some forced circumstances, sales of equity stakes in operating entities. Old fashioned bank lending is rare, if seen at all.

Here's the Mineweb article:


Miners Don't Need Banks

Merchant Banks 1 Year Performances from 2/8/2008 - 2/13/2009
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Re: Mine Financing

Postby mxsquid » 25 Mar 2009, 21:11

Traditional banks are no longer financing mining enterprises

Non traditional capital formation for miners
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