Over the last year or so I have been working on a side project I founded within the tech industry. One of the things that recently came to the forefront was the use of interns, unpaid interns, that is. I know that interns have been used for years in other industries including legal, politics, journalism, and marketing; however I have never come across the use of interns within the mining industry.
I was recently speaking with a marketing consultant about how to undertake tech marketing and one of the suggestions she made was to hire an intern to do much of the legwork of finding contacts and making contact with them. My first question was why would anyone work for free? I was told there were three reasons:
For credit; as part of a course credit in college or university where an internship is part of the programme requirement.
For experience; one can’t get a real job without experience and so the internship teaches something, builds up experience, and creates a portfolio of work.
Networking; building up network connections can possibly lead to permanent work.
At first I was taken aback at the thought of asking someone to work for me for free. Are we that cheap? On the other hand if you are paying someone a salary, the expectation is that they should be relatively skilled at their job. Giving it some further thought, , I have come to realize that the internship may actually be a win-win for both parties.
The company gets to better know potential employees and also gets some productive service from them at no cost. The intern grows their employment experience and learns about the realities of the business world. The students are paying the schools to teach them, and now businesses can help teach them as well, but at no cost. It’s a win-win.
So how did our intern search go? We posted a free ad on indeed.ca. Within 48 hours we received eight replies, of which only 2 came close to meeting the qualifications. Some of the applicants had no relevant experience at all. Possibly in today’s job market people are willing to work for free on the chance they can get some experience on their resumes which will hopefully lead to a job in the future. We’ll maintain the job ad for a couple more weeks and see what the overall response will be.
My bottom line is asking whether the mining industry can make use of interns in the areas of geology, engineering, marketing, graphics, etc? There may be a lot of young students out there looking for opportunity and willing to do whatever it takes to help advance their careers. Even if your payroll budget cannot afford the cost of another person, you still may be able to help out someone within the industry.
I recently attended a CIM Management and Economics Society presentation discussing the differences between actual underground production versus the forecast used in the feasibility study. The presenter was Paul Tim Whillans from Vancouver Canada. His topic is interesting and relevant to today’s mining industry and Paul raised many thoughtful points supported by data. The abstract for his paper is copied below and the entire paper can be downloaded at this LINK and here are the presentation slides.
An underground mining study that is done in accordance with NI43-101, JORC or similar reporting code is generally assumed by the public to be representative, independent and impartial. However, it has been well documented by academics and professionals in our industry that there is a sharp difference between the forecasts presented in these underground studies and the actual costs when a mine is put into production.
For underground mines, the risks associated with obtaining representative information are much greater than for surface mining and the cost of accessing underground ore is also proportionally much greater. There is a pressing need to align expectations, by improving the accuracy of projections. This will result in reduced risk to mining companies and investors and provide more reliable information to government agencies, the public, and more importantly, the communities in which the proposed mine will operate.
The objective of this article and an article currently being written titled “Mining Dilution and Mineral Losses” is to:
– Discuss the dynamics of intention that lead to over-optimism;
– Provide simple tools to identify which studies are likely to be more closely aligned with reality;
– Identify some specific points where underground mining studies are generally weak;
– Discuss practices currently in use in our industry that lead to a composite or aggregate effect of over optimism;
– Describe the effects of overly optimistic studies;
– Outline specific changes that are necessary to overcome these challenges; and
– Stimulate discussion and awareness that will lead to better standards.
In my opinion, I agree with many of the points raised by Paul. The mining industry has some credibility issues based on recent performance and therefore understanding the causes and then repairing that credibility will be important for the future of the industry. Credibility impacts on shareholder returns, government returns, local community benefits, and worker health and safety; so having a well designed mine will realize benefits for many parties.
If you need more information Paul’s website is at http://www.whillansminestudies.com/
There are numerous sources of mining information on the internet, encompassing topics such as technical articles, analyst opinions, and company press releases. It can be overwhelming sometimes. Now if your main interest is just seeing company news releases in a timely manner then what is the best way to do this?
One way is to go to the individual company website and sign-up one their email list. This approach generally works well but it forces you to sign up on a myriad of websites if you intend to follow a lot of companies. There are alternatives however.
One option is to sign-up for a free account with a newswire service where you can select the specific companies that you want to follow and then will get emailed news releases as soon as they are disseminated. The nice thing here is that you can select mining companies, non-mining public companies, as well as entire industries. Here are a few that I personally make use of.
Since different companies may use different news release distributors, the three websites that I track are:
Marketwire: There you can create a “Hot Off the Wire” account and then select your companies of interest. You can also select entire industries to add to your company list.
CNW Group Ltd. Create an account there and search various companies to add to your “My Subscriptions” list.
Junior Mining News is another source to get general news updates via their daily newsletter, a screenshot is shown below. Their daily email gives a brief summary of events that happened recently and includes “Read More..” links if you want to read the entire press release. This website accesses some of the same news release distributors as mentioned above so there could be some repetition from time to time.
Using the services described above, it’s very easy to sign up for a lot of companies, too many companies in fact, and then get inundated with emails. We know that public companies need to keep the news flow active and some companies are very good at continually issuing news alerts. However by using the press release distribution websites you are consolidating your requests, thereby making it easier to control the amount of information you want to receive.
Feel free to share your method for tracking companies, whether using the same websites or something entirely different and better.
I have often wondered if any of the junior gold producers has ever tried to model itself after a gold Exchange Traded Fund (“ETF”). This hybrid-model may be a way for companies to provide shareholders a way to partly leverage themselves to physical gold rather than leveraging solely to the performance of a mine. Let me explain further.
Consider two identical junior mining companies starting up a new mine. Each of their two projects is identical; 2 million gold ounces in the reserves with annual production of 200,000 ounces resulting in a 10 year mine life. On an annual basis, let’s assume their annual operating costs and debt repayments can be paid for by the revenue from selling 180,000 ounces of production. This would leave 20,000 gold ounces as “profit”. The question is what to do with those 20,000 ounces?
Company A sells their entire gold production each year. At $1200/oz, the 20,000 oz gold “profit” would yield $24 million. Income taxes would be paid on this and the remaining cash can be spent or saved. Companies may decide to spend more on head offices costs by adding more people, or they may spend some on exploration, or they could spend on an acquisition to grow the company. There are plenty of ways to use this extra money but returning it to shareholders as a dividend isn’t typically one of them. Now let’s jump forward several years; 8 years for example. Company A may have been successful on grassroots exploration and added to reserves but historically exploration odds are working against them. If they actually saved a portion of the annual profit in the bank, say $10M of the $24M, after 8 years they may have $80M in cash reserves.
Company B only sells 180,000 ounces of gold each year and puts the remaining 20,000 ounces into inventory in a vault. Their annual profit-loss statement shows breakeven status since their gold sales only cover their financial commitments and nothing more. In this scenario, after 8 years Company B would have 160,000 gold ounces in their vault, valued at $192 million at $1200 gold price.
If you’re an investor looking at both these companies in the latter stages of their mine life, which one would you rather invest in? Company A has 400,000 ounces remaining in mineral reserves and say $80M cash in the bank. Company B also has 400,000 ounces of mineral reserves and $192 million worth of gold in the vault. If I’m a gold bull investor and foresee a $1700/oz gold price, then to me Company B might theoretically have $272M in the vault. If I’m a super gold bug, then their inventory could be worth a lot more..theoretically.
I assume that the enterprise value of Company A would be based on its remaining reserves at some $/oz factor plus its cash in the bank. Company B could be valued the same way plus its gold inventory. So for me Company B may be a much better investment than Company A in the latter stages of its mine life. In fact Company B could still persist as an entity after the mine has shutdown simply as a “fund” that holds physical gold. If I am a gold investor, then Company B as an investment asset might be of more interest to me.
My bottom line is that it appears that most of the time companies sell their entire annual gold production to try to show profit on the annual income statement. Possibly this is to put some cash in the bank and to show “earning per share” to the analysts. My question is why not inventory the extra gold and wait for prices to rise if the company doesn’t really need the money or doesn’t want to gamble it on exploration or acquisitions? This concept wouldn’t be a model for all junior miners but might be suitable for a few companies to target certain gold investors. They could provide an alternative junior mining investment especially interesting in the final years of a mine life. Who wants to buy shares in a company who’s mine is nearly depleted? I might if they hold a lot of gold.
Have worked in the mining industry for over the last 30 years it is always interesting to see the herd mentality that exists and how we all can easily get caught up in fads. All it takes is a short term spike in a commodity price or a big discovery somewhere and then off we go running in that direction. It doesn’t matter the rationale driving the event, all we know is that we need to be there and our investors want to be there too.
Based on my experience, the fads that grab us can include specific commodities, locations, or technologies. The industry is very flexible in that regard. I’ll give a few examples below and you probably have more examples from your own experience.
It seems that as soon as there is a price spike or positive market narrative, any commodity can take a life of its own. The following are a few examples and when you think about them ask how many actually came into production or successful production.
Potash – a few years ago potash prices spiked and potash properties were all the fad no matter where they were located around the globe, be it Canada, Russia, Ethiopia, Thailand, Brazil, etc.
Lithium / Graphite – as soon as green technology started to be promoted in the news, miners couldn’t run fast enough to pick up the lithium properties, same idea hold for the graphite and vanadium and rare earth categories.
Uranium – years ago uranium prices spiked and Ur properties were hot everywhere.
Nickel; a spike in nickel caused a surge in nickel properties being it sulphide nickel, laterite nickel, or other forms.
Iron Ore – in conjunction with the Chinese construction boom, iron ore properties were hot around the globe, in high cost or low cost jurisdictions, it didn’t matter where the property was.
Diamonds – in conjunction with the first diamond discoveries in Canada, quickly diamond properties because hot, whether in the Canada or around the globe. If you couldn’t get a property in Canada’s boom area, anywhere else was fine.
China in general – whereby every base metal project was thought of as either a potential supplier to China or a potential acquisition for Chinese companies. As long as it could meet Chinese investor interest it was good.
We have all seen the staking rushes that occur when a world class prospect is discovered. I’m sure we can all recall getting the large claim maps (as shown below) with their multicolored graphics showing the patchwork of acquisitions around a discovery. PDAC was great for distributing these and they were well done and interesting to study.
Picking up properties in hot areas became the fad and share prices would move upwards regardless of whether there was any favorable geology on the property. Who recalls the following?
Voisey Bay; with a mad staking rush around there, with nothing else really paying off in the long run.
Saskatchewan; and the potash staking rush where almost every inch of the potash band was staked with only a couple of companies eventually moving forward and only one going into production.
Indonesia; during Bre-X people could get properties in Indonesia fast enough.
NWT; where the diamond property staking rush was crazing in the mid 1990’s.
Even mining or processing technology could get caught up in somewhat of a wave and become a fad for further study, a rationale often driven by suppliers or consultants. Who can recall…
Paste Tailings; with numerous conferences and consultants promoting thickened or paste tailings technology as the panacea leading to numerous studies related to thickening, pumping, and disposal.
Block Caving; whereby in order to deliver high tonnages at low cost, bulk underground mining was being promoted. Everyone wanted their underground project to be a low cost caving style operation.
High Pressure Grinding Rolls (HPGR); where process consultants would tout HPGR as the new replacement for conventional grinding mills. I’m not sure this technology has taken the industry by storm as they were hoping.
IPCC; whereby inpit crushing and conveying was being promoted in many articles and global conferences as the solution to operating cost pressures. I think implementation of IPCC technology isn’t as simple as envisioned.
Dot.com; in the early 2000’s many junior miners left exploration behind and transitioned to the dot.com boom, a fad with generally poor results.
Medical marijuana; seems to be the hopeful target for some junior miners today. Unfortunately there is only so much marijuana you can sell.
Pre-concentration; this seems to be a growing technology fad that may be gaining momentum, with a few consultants pushing for it to be studied more. This isn’t new technology and will have its benefits but a big stumbling block is how many deposits are actually suitable for its application.
My bottom line is that over the years it has been interesting to watch the mining industry react to events. Sometimes it seems like we’re passengers on a boat running from one side to other side and then back again. Unfortunately that doesn’t necessarily make for smooth sailing and can result in upset stomachs.
What’s the next fad? I don’t know but if you could predict it we can probably make a lot of money.
Just as a reminder for all QP’s doing financial analysis for PEA’s, don’t forget that one needs to present the financial results on an after-tax basis. Every once in a while we still see a PEA technical report issued only with pre-tax financials. That report is likely to get red- flagged by the securities regulators and the company will then have to amend their press release and technical report in order to show the after tax results. No harm done other than some red faces.
When doing a tax analysis in your model, where can you find regional tax information? For those of you that prepare financial models or are simply looking at mining projects in different jurisdictions, PWC has a very useful tax-related website. The weblink was sent to me by one of my industry colleagues and I thought it would be good to share this.
The PWC micro-site provides a host of tax and royalty information for selected countries. The page is located at http://www.pwc.com/gx/en/industries/energy-utilities-mining/mining/tax.html
On the site they have tax information for specific countries and you can either view the information on your computer screen or download a PDF version. Below is a screen capture from the PWC website.
The PWC tax and financial information includes topics such as:
Corporate tax rates
Excess profits taxes
Mineral taxes for different commodities
Rates of permissible amortization
VAT and other regulated payments
Fiscal stability agreements
Social contribution requirements
PWC has a great web site and hopefully they will keep the information up to date since changes in the laws are occurring constantly. It would be nice to see them add more countries to their 22 country database but it’s already good as it is. Check it out.