Mining finance

Foundations

1. 1The life cycle of a mine

   A mine is a wasting asset. What it is worth depends on its stage, and each stage has its own buyers, funders and valuation methods. 12 minute read

2. 2Resources and reserves

   All of mining M&A rests on one quantity: the metal that can be extracted at a profit. Reporting codes govern how it is published. 14 minute read

3. 3Reading a technical report

   A technical report often runs to several hundred pages, but the code fixes its structure. Knowing where to look saves days of due diligence. 13 minute read

4. 4Metal markets

   The metal price is the single variable that moves a mine’s value most. It is set differently for each metal. 13 minute read

5. 5Valuing a mine

   A mine has a finite life. It is valued first by discounting its cash flows to depletion, then cross-checked against multiples. 15 minute read

6. 6Building a mine model

   A mine model starts from the mine plan and works down to free cash flow, year by year, until the reserves run out. 14 minute read

7. 7Funding a project

   Building a mine costs from a few hundred million to several billion dollars before the first revenue. The funding package almost always combines several instruments. 15 minute read

8. 8Due diligence

   Due diligence checks that the metal exists, that it can be mined at the planned cost, and that nothing in the contracts, permits or relations with the state will capture the value. 13 minute read

9. 9The M&A process

   The drivers are those of any M&A. Technical review, the legal structures of the mining exchanges and government approvals make it a discipline of its own. 16 minute read

10. 10Risk and jurisdiction

    A mine cannot move. For decades it stays exposed to its host state, its neighbours and a geology that always differs a little from the model. 12 minute read

Case studies

11. 11Case study: Newmont and Newcrest

    Newmont’s acquisition of Newcrest, completed in 2023, brings together most of the course: tier-one assets, a raised offer, a scheme of arrangement, share consideration and disposals afterwards. 10 minute read

12. 12Case study: Glencore and Xstrata

    The trader that bought the miner. Glencore already owned about 34% of Xstrata; turning that stake into control took fifteen months, a raised offer, a shareholder revolt over bonuses and a forced sale in Peru. 10 minute read

13. 13Case study: Barrick, Randgold and Nevada

    In six months, Barrick merged with Randgold at no premium, bid for Newmont at no premium, then settled for a joint venture that captured the synergies without a takeover. 9 minute read

14. 14Case study: BHP and Anglo American

    The largest mining approach in a decade failed less on price than on structure. BHP wanted Anglo American’s copper, not its platinum or its South African iron ore. 9 minute read

15. 15Case study: Anglo American and Teck

    After fending off BHP, Anglo American chose its own partner: a copper-focused merger of equals with Teck, built around two neighbouring mines in northern Chile. 10 minute read