MINING PROPERTIES 101 - BUYING A MINE
10 Fundamentals to Help You Find Value in Your Next Mining Property
Myth #1: The higher the price, the better the mining property will be.
REALITY #1: a highly priced mining property for sale may be worth the money, but there are many accounts of sellers who have priced their mining properties for sale in the high heavens without knowledge of actual market conditions, value and fitness for use. Many private mining property owners (and mining property brokers) have taken their property to market without any expert opinion and have listed their property with no realistic benchmark of fair market value. Some people who inherit a mining property price it based on sentimental reasons. The sellers reason for sale should not affect your reason for acquisition. A professional Mining Property Broker should have a combination of relevant education and 5-10 years’ relevant experience, or more, with access to hundreds or thousands of actual and recent mining property sales records to be able to accurately determine what the market will bear for all mining properties for sale under their care.
Myth #2: I need to buy a mining property with a 43-101 already completed on it to use for an i.p.o.
REALITY #2: A mining property now requires that the Qualified Professional(QP) that authors a report for public markets reports according to a specific format, National Instrument 43-101. As awareness of this regulation increases, mining property buyers who intend to raise public funds are seeking mining properties for sale that have had 43-101 compliant work already completed, that has been authored by a QP according to the format laid out in the 43-101 form F1. From the perspective of compliance this is an excellent step, however in doing so, potential wealth builders may veer from the subject of materiality; the mining property itself. The truth is, you may be able to use many of the mining properties you find for an Initial Public Offering (IPO), but there’s wisdom in co-ordinating the 43-101 complaint work yourself. By striving to fundamentally understand and further develop a mining property by conducting initial reconnaissance, prospecting, mapping and possibly opening up exposures, you’ll likely be able to:
-Achieve a better understanding of the property
-Provide a greater quality of input to the QP that YOU hire
-Ensure that the selected QP is materially qualified to the work at hand
The likely benefits of putting together your IPO mining property hands-on include:
-More mining properties to choose from
-A 43-101 compliant report that is more up to date and materially robust
-A better quality offering to the public
Potential mining property buyers who intend to take a company and property public should also realize that the National Instrument 43-101 is a convention, it will not change the amount of minerals on your property, it simply creates a uniform reporting structure that mandates relevance and accountability. Take the time to get to know your own mining property in as much detail as possible.
Myth #3: All companies selling mining properties are reputable.
REALITY #3: All companies and individuals that sell mining properties should have the specific legal and social license to do so, but not all do. A website may list 100 mining properties for sale and the implication of credibility simply because they are a mining company, a prospector, or that all they do is sell mining properties. You should be able to determine and verify the social license of any company selling mining properties prior to doing business, or accepting recommendations thereof. A social license is the combination of education, experience and professional integrity, in this case, relevant to selling mining properties. Learn to differentiate between companies, individuals and websites where mining properties are just posted for sale, versus sites where mining properties are actually reviewed or better yet, verified. Still, even this will not replace performing all due diligence independent of the seller, prior to purchase.
Myth #4: Mining properties with quantified resources are guaranteed to succeed.
REALITY #4: A quantified orebody should be evaluated by reviewing the verified intensity of the orebody, i.e. the quality and quantity of actual validation compared to the stated resource or reserve. The next part is recoverability. Can the desired minerals be recovered through mechanical, chemical or even biological means, safely and profitably? Some ores are refractory, which means they are resistant to chemical separation and require expensive treatment. Others may not be economically viable under the current market prices for those minerals. The Canadian Institute of Mining provide the classification criteria of Proven/Probable Reserves and Measured/Indicated/Inferred Resources and the 43-101 reporting format for which operators must comply with when classifying mineral deposits for economic use. Reserves normally must also take into account whether the deposit may be mined legally, and this means all economic, environmental, social and cultural engagement has taken place and the legal right to mine has been established. These mechanisms are in place presumably to mitigate risk and justify the classification (and in turn, actual value) of the deposit. Be careful when you see statements like: “the area has the potential for 4 million ounces of gold”. In an area of 100 metres around where you are standing right now, if you go deep enough straight down towards the centre of earth there is probably the potential for a million ounces of gold. This doesn’t mean it will ever be mined safely or profitably. Then again in another thousand years who knows. The point is, be careful when you see unsupported volumetric statements. Work should be referenced thoroughly when supporting volumetric statements that are taken into account if valuing a mining property for sale.
Myth #5: In placer mining, you can use a goldpan on the surface to determine how good the underlying deposit is.
REALITY #5. In placer mining, you can use a goldpan on the surface to suggest if the AREA may have gold bearing gravels. The closer you sample towards the surface of your placer deposit (and this is also true when sampling regolith for hardrock deposits) the less relevant the results will usually be in relation to the placer gold bearing gravels that may lie at or near bedrock, or at an impermeable layer or false bedrock suspended in the soil strata. The deeper you sample the more relevant the geochemistry of the soil and gravels will be to the actual minerals at greater depth. And yes, in placer mining, washing around material brought up from greater depth can still be goldpanned for visual indicators. At some point herein a more formal concentrating method should be introduced.
Myth #6: The companies and individuals who extensively advertise and are the most visible in search results have the best mining properties for sale.
REALITY #6: Companies who advertise mining properties extensively or appear prominently in search results may have employed expertise in their marketing efforts. There is no correlation to their visibility in media and search and the quality of their offerings, although companies who actively take it upon themselves to develop, deploy and maintain effective marketing strategies may provide superior value to advertisers and clients whose net result will be influenced by visibility.
Myth #7: Past producing mining properties for sale are all mined out.
REALITY #7: Mining Properties wind up for sale for many reasons. Markets are one of the main reasons for mine closure and disposal. Sometimes deposits are exhausted and documented as such. Sometimes the premise exists for continuity of mineralization on property thought to be exhausted but the financial resources do not exist to validate it. We’ve seen properties abandoned because of a possible offensive nature of individuals associated with it – given the Bre-X scandal years back many people were resistant to mining in the same area, or even remain in the gold mining industry because of the severity of the situation and the premise for association. When evaluating a property, the best interpretations are made by reviewing all accessible data and searching for or requesting sometimes more obscure reports for valuable input. An awareness of actual enterprise environment at the time is also prudent. In the gold business, it’s been said “Gold is where you find it”, and today this remains the underlying premise of the attractiveness to past producers as areas to target for further discovery.
Myth #8: I found a mining property for sale, well known in local history, that referenced past assessment work in its description. I guess that i will own all of the property referenced in the past reports if i buy the mine for sale?
REALITY #8: Mining properties often change hands. Mining property owners may increase or decrease the size of their mining property at any time. From time to time mining jurisdictions may also change the regulations and formats associated with acquiring or maintaining mineral titles. These operating conditions result in the need to compare the claim location and boundaries of the subject mining property for sale with the location and boundaries of properties referencing past work. It’s up to the buyer performing due diligence on the subject mining property to determine the location and relevance of past work as it relates to the subject mining property offering and its current legal boundaries.
Myth #9: Only mining companies purchase mining properties for sale.
REALITY #9: The premise for creating value with highly prospective mining properties is developing what is known about the property, to merit further expenditures for more formalized exploration. For this reason anyone with the ability to understand how minerals are deposited and where to look for them can potentially increase the value of a mining property, provided they spend time to carefully look for areas of mineralization and continuity, develop their mining property and document this information as accurately as possible.
Myth #10: we found the perfect mine for sale with a 43-101 compliant resource, all infrastructure nearby and in full production, nothing can go wrong!
REALITY #10: Make sure BUYERS for your mineral products exist within a profitable distance from your operation and the distances where mineral products will be shipped to. The actual cost of transportation must also be taken included in the basis of estimating value and feasibility. A remote operation may have an resource deemed outstanding but lacks the infrastructure to be profitable in current markets and based on the geography of its end users. This information should always be integrated with all relevant decision making data whenever purchasing a developed mining property or committing to extensive and expensive development work on it.
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