Who can you really trust?
It’s not as simple a question as it sounds, especially when it comes to the mining industry, where various forms of truth and interpretation can be presented in multiple different ways by promoters and the consultants they hire to provide valuations of their projects.
It’s not that the mining industry’s consultants aren’t tip-top. The likes of SRK and ACA Howe have some of the best minds in the business. But it’s not a precise science either, and no one expert can be 100% correct. Opening the conversation up to a wider group can help mitigate the risk to all parties. And there’s always the issue of who’s actually paying for the information that gets put out by the so-called independent consultants. The answer, almost every time, is the company that owns the asset that’s being evaluated.
And it’s commonplace in the mining industry to hear of companies that have had long back and forth arguments with consultants before releasing economic assessments or feasibility studies.
The impartiality of such company-sponsored economic analysis is bound to be called into question now and again, or in fact more than now and again: all the time.
Until now though, there hasn’t been too much that prospective investors in projects can do about it.
Sure, the big private equity houses can employ their own in-house expert geologists and engineers, but as Jamie Strauss, the founder of new research company Digbee points out, there’s only so far that such expertise can go.
For example, if a private equity firm is considering investing in a major copper porphyry project in South America, it’s open to question how much a hypothetical in-house geologist with a specialism in Australian IOCG projects can really help. Or if a feasibility study calls for pressure oxidation on a nickel project, what the relevance of an in-house engineer’s expertise on processing epithermal gold ore really is.
In short, it’s hard to provide ahead of time for the level of expertise that’s required for any given project that comes through the door.
But that’s where Digbee comes in.
The model is simple enough, as Strauss explains.
As a mining finance veteran himself, he reckons that around 73% of all mines are now financed either by private equity, strategic, alternative lending or streaming/royalty deals. And all those potential investors are doing huge amount of due diligence on their potential investments and crying out for truly independent analyses of the opportunities they are considering.
“These are a new breed of investors, due diligence is at the heart of their process,” say Strauss. “And they have no interest in an investment bank saying a stock will go to 60p.”
But on the Digbee platform accredited industry experts will be able to upload their own research to be offered for sale to such potential buyers, with the proceeds split equally between Digbee itself and the expert.
Digbee research will run on a bespoke template and will focus on risk rather than valuation, and it’s here Strauss thinks he’s going to score big.
“According to research undertaken by McKinsey,” he says, “80% of mining projects come in over budget.”
It’s that shocking statistic that underpins the demand for expert risk-focussed research. After all, if a house broker, or one expecting to be involved in the next big transaction, sets a certain valuation on any given project, that valuation gets blown out of the water as soon as the development timetable gets derailed or there is a cost blow-out.
By focussing on the risk of these events, and others like them, occurring, Digbee makes it easier for institutional investors to conduct their own internal risk assessment and to arrive at a more independent and considered view of valuation.
And Digbee research won’t cost much. Getting SRK to run over a project, in detail, can run to hundreds of thousands of dollars.
But Digbee research will be based on the expertise of the analyst in sifting through data that’s already in the public domain through economic assessments and feasibility studies. The key, says Strauss, is that the datapoints going into each company-financed study are vulnerable to the kinds of manipulation only a specialist will be able to spot. Digbee will deploy such specialists, and they will be beholden to nothing but their own reputations.
Depending on the quality of the analyst selected Strauss reckons each individual piece of research will cost between US$1,500 and US$4,500 to buy. That’s cheap for the buyer. But it’s also potentially very lucrative for the analyst, since if a project is attracting a lot of interest and, say, a hundred potential investors buy the research, the income begins to build up rapidly.
That’s good for experts, who have become somewhat beleaguered in recent years as the full weight of the ongoing bear market has pressed down on them. And it’s good for potential investors too, as they get to assess projects objectively for a change, with more information to hand to guide their investment decisions. And ultimately, it’s good for the mining industry as a whole.
“This industry is inundated with biased reports,” says Strauss.
Digbee will go some way towards correcting that.