wrong, something is very wrong

RISK UNDERVALUATION IN MINERAL PROJECTS

Reporting to markets should (have to!) be complete, independent and competent.

Risk is a key factor; in most cases, along with commodity price, the most important variable defining a project’s value. The importance of a good estimate of the risk measure (the discount rate in DCF models) cannot be overemphasized.

Yet, something is wrong, very wrong:

  • In most cases (in a sample of 77 documents reporting pre-feasibility, feasibility studies and valuation exercises of operating assets), the magical discount rates used in DCF are 5% and 8%, accounting for 26% and 27% of the cases (10% accounts for 17%). In 75% of the analised cases, the used discount rate is ≤ 8%. Let’s say you are an investor, would you accept a lower than 8% rate in most mineral projects?
  • The 5% magical number is pervasive in gold projects. A new rule can almost be written; IF gold THEN 5%.
  • Reports include countless pages of technical minutia and detail of doubtful utility for the average investor; yet only a handful of them has any discussion or justification of the chosen discount rate.
  • Country risk is irrelevant; I will grant that the 77 sample is relatively small but the anecdotal evidence shows that the same risk is attributed to projects in the US and Canada or in Burkina Faso and Colombia.

Please bear in mind these are preliminary results; as more data is compiled, new trends may develop. Although I tried to have a random sample, diamond and gold projects may be overrepresented (20 and 21 out of 77, respectively).

I will present these and other results at SME’s Mining Finance Conference in NYC on May 1 and 2, a little more than a week from now. If you are attending, I would like to discuss in person the reasons behind this and how should this (can it?) be remediated – or shouldn’t reporting to markets be complete, independent and competent?

Being a member of SME and of the Society of Economic Geologists – SEG I will try to discuss this issue within these professional organisations. Your comments (in person or through online fora) are always welcome.

Camissombo – Moquita – Lucapa – Saurimo – Malanje – Luanda: ida e volta

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A caminho do trabalho – garimpo na Lunda Norte

Um projecto de prospecção e exploração de diamantes de aluvião levou-me, de novo, a Angola.

Estreámos uma nova tecnologia (um drone acabado de comprar; como vivemos até agora sem um?), revimos velhos amigos e fizemos novos conhecimentos, falámos com garimpeiros e ouvimos a chamada muçulmana para as orações às 4 da manhã no Lucapa, experimentámos uma (para nós) inédita viagem por estrada Camissombo – Moquita – Lucapa – Saurimo – Malanje – Luanda, atravessámos e viajámos no rio Luachimo.

Viajo (e trabalho) há vinte cinco anos para Angola; nenhuma viagem foi tão intensa. Os filmes e as fotos que irei publicando ao longo das próximas semanas são para mim forma de não esquecer; para quem já lá viveu, pretexto para recordar.

A Sínese é uma empresa especializada em Geologia Económica e Análise e Sistemas Inteligentes. Fundada em 1995, a Sínese realizou estudos técnicos, económicos e de mercado, desenvolveu sistemas de informação especializados, concebeu e implementou projetos de prospecção, avaliação, mineração de recursos minerais em diversos países e continentes – Europa (Portugal), África (Angola, República do Congo, África do Sul, Angola) e nas Américas (Canadá, Estados Unidos, Brasil, Argentina, Uruguai e Equador).
Em particular, a Sínese esteve envolvida em inúmeros projetos ligados à prospecção e mineração de diamantes jazigos aluvionares e quimberlíticos em Angola e no Brasil, de pedra natural em Portugal, no Brasil e em Angola e de ouro e/ou nióbio e tântalo (nomeadamente aluvionares) em Portugal e na República do Congo, manganês e outros metais no Brasil.
A Sínese, coordenada por Luís Chambel – luischambel@sinese.pt , é constituída por uma equipa coesa, flexível e altamente qualificada, com especialistas em diversas disciplinas técnicas e científicas, desde a Engenharia de Minas, Geológica Económica e Aplicada, Sistemas de Informação Geológica, Estatística e Análise de Dados.

Atractividade do investimento na produção de diamantes de origem aluvionar

Escrevi esta tese de mestrado (MBA) em 1993, há quase 25 anos.

A idade da tese nota-se nalguns tópicos; continua, no entanto, a ser uma referência útil em língua portuguesa para quem tenha interesse no tema. Como acredito que não seja fácil de encontrar, disponibilizo-a em formato pdf: basta seguir o link.

Acredito que possa ser útil, especialmente para quem, em Angola ou noutros países de língua portuguesa, se inicia nesta actividade.

Mais tarde, na tese de doutoramento, continuei a explorar o tema (embora numa outra perspectiva) – irei também disponibilizar em breve este documento. Finalmente, publiquei em final de 2013 um relatório sobre a indústria dos diamantes de Angola – disponível neste blog, One century of Angolan diamonds (em inglês).

Neste momento, co-oriento duas teses de mestrado e uma de doutoramento ligadas à exploração de diamantes em Angola. Assim estejam concluídas, serão também aqui divulgadas.

 

Updated editions of all Blue Books of gemmological standards and nomenclature on CIBJO website

The six CIBJO Blue Books are definitive sets of grading standards and nomenclature for diamonds, coloured gemstones, pearls, coral, precious metals, and gemmological laboratories. They are compiled and then are consistently reviewed and updated by the relevant CIBJO Commissions, whose members include representatives of trade organisations and laboratories active in the respective areas of the industry. In the almost complete absence of jewellery industry standards endorsed by the International Standards Organisation (ISO), the CIBJO Blue Books are the most widely accepted set of globally accepted standards.

The updated versions can be downloaded from the following page on the CIBJO website: http://www.cibjo.org/introduction-to-the-blue-books/.

For individuals who are not members of a CIBJO-member organisation, each individual download will cost 9.90 Swiss francs. All six Blue Books (Diamond Book, Gemstone Book, Pearl Book, Coral Book, Precious Metals Book and Gemmological Laboratories Book) can be downloaded as a single package at a discounted rate of 49.90 Swiss francs. For individuals who are members of an organisation that belongs to CIBJO, he or she is entitled to receive the CIBJO Blue Books free of charge. They should contact the organisation of which they are members to arrange delivery of the relevant Blue Books by email.

(excerpts from a FEBRUARY 13, 2016 CIBJO press release – the underlining is ours)

First diamonds from the new Renard kimberlite mine

Stornoway Diamond Corporation (TSX-SWY) just released information about the first sale of the Renard kimberlite mine – press release.

In total, 38,913 carats were sold at an average price of US$195 per carat, for proceeds of US$7.6 million (C$10.2 million).

Matt Manson, President and CEO of Stornoway, commented “The diamonds sold in this first sale represent a portion of our production recovered during the initial commissioning and ramp-up of the Renard project during August and September. We saw strong interest in our product assortment, with 153 diamantaires attending the tender. Pricing met or was close to our expectations on most items. Recent events in India surrounding demonetization has impacted pricing and demand for certain smaller and lower quality items and, as a result, a quantity of these were withdrawn from the sale. These will be sold at a later date. Because of this, and because of a higher than expected proportion of small diamonds recovered during the ramp-up period, the result of this first sale cannot be taken as representative of the longer term pricing profile of the project. This was the first introduction of Québec diamonds to the market and a price discovery exercise. We look forward to growing our sales profile over the next few months. The project’s production ramp-up continues to exceed our expectations, and three tender sales have been scheduled for the first quarter of 2017.”

 

Oil and metals: Goliath and David

Another excellent infographic published by Visual Capitalist (a few weeks ago).
They left diamonds out of the picture, a pity. They included graphite, diamond’s darker and duller brother, though; curiously enough, both markets are very similar in value (diamond production marginally smaller, at close to $14B).
Courtesy of: Visual Capitalist

US $8.3 million, 1 863 ct diamond record sale by LUCAPA DIAMOND COMPANY

The latest sale of Lulo project (Angola) production by Lucapa Diamond Company (ASX:LOM) reached a new record: 1 863 ct were sold for US $8.3 million (at a US$ 4 452 per carat average price) – ASX Announcement of 07 November.

That announcement follows an earlier dated 27 October describing the continued recovery of large diamonds in the company’s alluvial mining operation in the Lulo Project (Angola), including five white type II-A – 172, 104, 77, 72 and 71 ct – and one 39 ct fancy pink (the largest to date at Lulo).

You may obtain the full ASX announcements on LUCAPA DIAMOND COMPANY (ASX:LOM) here: http://www.lucapa.com.au/announcements.

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